Why you will never pay off your credit card

Posted by – 21/02/2010

[via cracked.com]

For decades, credit cards have been a means by which large banks have loaned money to poor people at interest rates approaching infinity.

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A Brief History of Credit Cards

Incredibly, the above isn’t an exaggeration. There are people in this situation right now where each payment to their credit card company leaves them owing more. Only in the last few years has the government moved to stop banks from putting people in this cycle of infinite repayment (where the interest and fees are more than the monthly payments).

How was this ever legal?

Well, in the late 70s, the US Supreme Court ended the federal predatory lending laws, and the credit card economy was born.

Banks issued cards to anyone and everyone, often charging 24.99% interest (or higher, cash advances often collect 29.99%) and adding on an assortment of fees hidden in the fine print. This appears to be a good deal for the card holder, as the monthly payment is very low. Specifically, it was often 2% of the balance, an amount that would either have the card holder paying back their debt many times over or, in the worst cases, never paying it back at all (especially once unexpected fees were thrown in).

As wages for middle and low income Americans stagnated in the 90′s and manufacturing jobs went overseas, much of the growth in consumer spending came in the form of goods bought with credit cards. Thirty years after that Supreme Court decision, the average American card holder owes $10,679 on their cards. About 80% of American families have at least one card. Combined they owe about a trillion dollars, but will pay back far, far more.

In 2005 the government stepped in and “encouraged” credit cards companies to raise their minimum payments to something that would actually pay off the debt in the card holder’s lifetime. They were not, however, actually required to comply.

More recently the Obama administration signed into law new regulations that will supposedly require credit card companies to operate in a less overtly evil way.

If you have a credit card, for the love of God, pay more than the freaking minimum.

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