And: Credit card rates are way, way up compared to just a few years ago. WSJ reported average APRs in the US were over 24% (https://www.wsj.com/finance/banking/the-credit-card-rate-cap...). Most people do not read the fine print on their credit card applications, or compare them to what rates used to be like.
1. Economy gets worse and some people are no longer able to keep up with their credit card payments. They default.
2. Credit cards increase rates to compensate for the increased risk since a greater fraction of their users are failing to pay.
3. People who are financially stable and literate see the increased rates and put fewer things on credit.
4. The remaining pool of people using credit now has an even greater fraction of people who aren't financially solid.
5. Go to 1.
These people also don't make the cards much money, so loosing them wouldn't have that much of an effect anyway.
If anyone is wondering how to escape this cycle, the solution is pretty straightforward; don’t buy things you cannot afford with cash/debit.
If putting your credit card balance on autopay is scary to you, you probably shouldn’t have a credit card. Also, having a credit card doesn’t mean you can ignore the charges and settle up at the end of the month. Credit is a tool that can be abused and misused like any other tool.
Personally, I’m anti credit in general and don’t have credit cards or a credit score. But I also moved to Europe where credit is not nearly as important as when i lived in the US.
if only people could choose to have or not have a credit score. that would be cool. unfortunately, equifax/transunion/experian are some of the original data vacuums and assign one whether you want one or not.
When it comes to the choice of being responsible with debt or making sure your kid has calories today, there isn’t really a choice in reality.
There is a lot to be said for better financial education, but there is also a lot to be said for services like credit cards that allow someone to smooth out a cash flow issue.
It all seems so obvious until you find yourself in that situation. Most (or many at least) people in debt aren’t stupid or reckless, although they may be ignorant of their options for spending better and for borrowing better.
Since credit is the primary means used for discretionary spending, I firmly believe that the accessibility of quick (but not necessarily cheap) interest allows inflation to go unchecked.
I am giving a transcription of the situation in the video[0] but buy now pay later apps have on average 300% apr (yes this is not a joke) and even ask for tips and have so many dark patterns, both these industries are really similar/the one basically.
> She had just switched to this remote job, which was a pay cut, but it let her stay home and care for her son at the time. And then after she went back to her normal job, she actually stopped using Earnin for nearly two years. She got on a stable financial footing. She even bought this house. But housing costs are expensive and for a bunch of complicated reasons, her child support payment is less this year than it was before. And that put Runeda in this really precarious position, where if one thing went wrong, it would completely throw her off financially. And about two weeks ago, that's exactly what happened. My son wakes up really early sometimes, and it was, like, 5:00 in the morning, and I went to try to, like, open an app on my phone, and it wasn't loading, and I was like did they turn my internet off? And I checked the router, and it said your service has been interrupted for nonpayment, and I'm like, what the heck are you talking about? The bill used to be on auto pay, but for some reason wasn't anymore. they told me I had to pay, like, over $200. I had like 50 bucks in my bank account. That was the first domino, and everything fell apart from there. Runeda borrowed $150 from Earnin to pay the internet bill, the $20 reconnection fee and the $6 Earnin fee.
[0]:Billionaires Found a New Way to Steal Your Paycheck:https://www.youtube.com/watch?v=hBI_FLYfwmM
I've had credit cards for 30 years. Use cards for all expenses when I can, have always paid the bill in full every month, have never spent a dollar of interest in my life, so I don't even look at the interest rate when getting a new card. I don't spend anything I know I won't be able to pay for at the end of the month (and yes, that does mean we've postponed purchases for months or even years).
But the allure of buy now pay later is pushed so heavily that it's hard for many people to resist.
Financially stable and literate people don’t pay credit card interest at all.
Credit cards are useful for fraud protection and rewards, the people that use them to finance purchases at 24% APR are wildly irresponsible or desperate.
You, a young adult who doesn't check: I'll get one! runs up debt with an interest rate 4x what your mom had to deal with thirty years ago HELP I'M SUPER BROKE AND BANKRUPTCY IS A LOT HARDER THAN IT WAS THIRTY YEARS AGO TOO
You, a young adult who checks: The interest rates are 4x what they were when I was in your situation. This looks like a much shittier deal than it was for you.
