3.The Plastic Crime Starter
Can a simple piece of plastic start a chain of events that eventually leads to criminal actions? Well, ultimately the responsibility for criminal acts lies on the person who committed them, but that Plastic Crime Starter can play a role.
You’ve seen the commercials for a particular credit card, at the end of which a medieval raider asks “What’s in your wallet?” The not-so-subtle inference is that the wrong credit card can rob you blind.
In fact, however, if not used wisely, all credit cards can be one-way gates to financial hell.
The book “Heist,” based on actual events, tells of the $17 million robbery of a funds transfer company. An appealing female former co-worker was the one who initially approached David Ghantt, an armored vehicle guard for Loomis, Fargo, & Co. in Charlotte, N.C., offering herself as a reward he could collect along with all of the cash. She in turn was a patsy of Steve Chambers, a career criminal who conceptualized the whole scheme, got much more of the money than all other participants combined, and eventually tried to have Ghantt killed because he was making a nuisance of himself expecting his share of the loot.
Ghantt had no criminal record, and it required a lot of convincing. There were many disappointments in Ghantt’s life, and many in his situation would daydream about being very rich, but while tempted, he continually rejected the idea. What pushed Ghantt over the edge was doing a little arithmetic, and realizing that it would take him thirty years to pay off his credit card debts, even if he faithfully made the minimum payment each month, which was often difficult to do! Ghantt is now in prison, having lost all his possessions, his wife, and any hope of ever being hired for the same kind of work again. Ironically, he never got more than a kiss from the temptress.
That unpleasant realization, the “credit card awakening,” has driven others to unfortunate decisions. I can only imagine how many former offenders, struggling to build respectable lives, have thrown their hands up in despair when they just look at the financial hole they’ve dug for themselves. Probably many others, like Ghantt, commit their first criminal acts under the same circumstances.
How can that be? Let’s look at some figures:
If your credit history is not so great to begin with, or if you’ve been late with too many payments on a credit card account, you can wind up with an interest rate of 21.9%. Suppose you’ve used that credit card to make $10,000 worth of purchases. Hopefully you wouldn’t do that for frivolous purposes, but the dollars work out the same even if every buying decision seemed prudent and responsible at the time. The balance is still $10,000, whether it went for a fling at a casino or mother’s hospital bills.
Many credit card accounts have had terms that included a minimum monthly payment of 2% of the balance or $15, whichever is the greater amount. Two percent of $10,000 is $200. But in that same month, you’d be charged an additional $182.50 in interest. So your $200 payment only reduces the balance by $17.50! If you’re unemployed for a while, or your wages just barely cover the monthly essentials, it would be tempting to pay only that minimum every month. At that rate, it would take slightly more than fifty years to pay off that balance. And when you’d finally paid it off, you would have paid $67,889.56 in interest!
Lots of honest people jokingly say “Let’s go rob a bank!” when going over their monthly bills. But once in a while, there’s probably someone who’s seen “Fun with Dick and Jane” who thinks, while adding up all the payments that are due, “Wait a minute! Maybe that’s not such a crazy idea!” Perhaps it’s not robbing a bank, but cashing some hot checks, or running a couple of kilos of cocaine, or stealing from an employer.
Let’s take a less extreme example. Suppose your balance is only $5,000, your interest rate is 16.9%, and the minimum payment is set at 4% of the balance or $25.00. Under those conditions, it would take nine years and three months to clear the account, and you’d pay a total of $2528.23 in interest. Not as staggering, of course, but still a major burden, with monthly interest charges that would be better spent on education, health care, investment in a retirement fund, or just going out for a nice evening once a month with your significant other.
You can picture for yourself what life would be like, under either of these sets of circumstances, if it’s more than one such account you’re paying off. Suppose there are three such credit card accounts, plus a revolving department store account, and a high interest car loan. Damn! That five-year-old Cadillac looked like such a good deal at the time! It all adds up to a major nightmare.
| Want to take a long-range look at your own or someone else’s real or expected credit card situation? Use the free Credit Card Calculator on this web site. |
What to do?
The best solution is not to get into that situation to begin with. But suppose you’re already there?
Well, don’t rob a bank. In fact, don’t even think about any kind of illegal fast money solution.
Not as extreme but still a bad decision is playing the deadbeat game: Quit the job, leave town, move in with your cousin in Tupelo. (Under some circumstances, that could involve criminal fraud. Certainly you can face criminal charges if you move mortgaged property – car, furniture – to another area without notifying the creditor.) Credit card companies may not be as vicious as the Cosa Nostra when you try to burn them, but they can be much better at tracking you down. You can be sued, your wages can be garnished, much of your property seized...in other words, it won’t be a nice picture. That history will haunt you for at least seven years, and in that time you may apply for a job that requires a credit check, or want to purchase a home. You might even find it hard to rent a suitable apartment without paying a huge deposit.
Bankruptcy might be an option, but it should be your last resort. A bankruptcy stays on your credit record for ten, rather than seven years. Almost anything you own can be seized and sold. And to put it bluntly, the ordeal can be a pain in the ass. There are several kinds of bankruptcy filings, and you’d need a good lawyer to advise you on this.
A bill consolidation loan may be a good choice. If the interest rate you wind up with is considerably lower and the monthly payment is smaller than the total you’re now paying on those other debts, and it will enable you to get out of debt sooner, and you can be sure that you won’t just run up additional debts, then you should give it serious consideration. Be sure there’s no prepayment penalty to discourage you from paying it down sooner than scheduled. Sometimes that prepayment penalty is disguised as a fine print statement about the “rule of 78ths.” If you don’t know what that means, I won’t take your time here to explain it. Either look it up, or just take my word that it’s not good.
If you have some equity in a home or vehicle, you could think about selling and buying something cheaper. That’s a tricky proposition for a number of reasons, and I’d suggest talking to a financial advisor before you make that decision. There are not-for-profit credit counseling agencies that can help with this, and many charitable institutions can provide this service. Or, if you’re not totally strapped, you may simply want to hire a professional personal financial consultant. Please don’t just call on lovable Uncle Harry, or that lady on the bowling team who seems so smart!
There are also financial managers who specialize in helping people get out of debt. The financial manager may contact your credit counselors, tell each of them what you can afford to pay on a regular basis, advise you as to what should be paid off sooner rather than later, and actually dispense the funds for you. The financial manager will likely take a fee for his or her services, such as a percentage of the money you’re paying out. To the best of my knowledge, however, that fee will probably be smaller than the mounting interest and late charges you’d otherwise be paying. When the debt problem is behind you, assuming you can learn from experience, you’ll be better prepared for financial success in the future because you’ll know how to live within your means.
And if it’s not that bad?
Suppose you’ve got a pile of credit card balances, but you’re still making ends meet pretty well. Maybe you’re not stacking up additional charges now, and after you make those minimum payments you still have enough to get you through comfortably until the next paycheck. As I said earlier, you’d still be paying interest charges that could be better spent in other ways. And if something changes that either cuts your income or adds to your ongoing expenses, then that comfortable cash flow margin you now have could shrink to nothing.
So as the old saying goes, you don’t wait until the cow gets away before locking the barn, or something like that! Start paying down those balances now. If your minimum payment on an account is $200, and all but $20 of that is interest, and instead of $200 you pay $300, you shorten by five months the time that it will take to pay off that account. If you have a department store account with a 10% interest rate (which would be pretty low these days) and a similar balance on an oil company card that charges 20% interest, it’s obviously the 20% account you should pay off first.
Credit cards can be a big convenience, and I use them myself. It’s convenient to pay at the pump in a service station, for example, and it’s usually faster to use a credit card than to write a check. A credit card will be necessary if you want to rent a car, or order merchandise over the phone. But ideally, that’s what you use it for: A convenience, and not as a means of purchasing goods and services you can’t afford. That means you pay off the balance every month. When the statement comes from Shell or Citgo showing a balance of $50 and a minimum payment of $10, you should automatically pay the $50. It should be the exception when you charge more to a Visa or Mastercard account than you can pay off immediately, and that should only happen for a good reason.
Let’s say I desperately need a new furnace that will cost $2500. If I can’t afford to write a check for $2500 right now, my choice is to consider whether to open an account with the company selling me the furnace or to charge it to Visa or Mastercard. The interest rate should be the main determining factor. In either case, I need a plan to pay it off, say, $500 each month. If that’s more than I can afford, then I set my plans to $300, or whatever amount leaves me enough to live on and still gets the balance paid off quickly.
If you have a good relationship with a relative or employer, who knows you to be reliable about meeting obligations, it’s not a terrible sin to ask for a loan as a personal favor. But it’s wrong to tap someone who will cough up the money you need out of a feeling of duty although he or she really can’t afford it, and it’s certainly wrong to fail to pay such loans as promised.
Two common blunders
I’ve fallen for both of these in the past. The first is one that a reasonably smart person should learn to avoid pretty quickly: That’s assuming that 90 or 120 or 300 days from now you’ll have a lot more money than you have now. Unless you know for certain that something is coming in, like an income tax refund, or you know your last car payment will be in the next couple of months, it’s best to assume that however tight your finances are right now is at least how tight they’re going to be a couple of months down the road. “No payments ‘til January!” is a favorite ploy merchants use to get you to spend money you can’t afford.
The second is to overlook details in some credit plans. “No interest for one year!” doesn’t mean you won’t have to make payments during that year, and the conditions of the deal may be that if you are late by even one day with even one payment, all of the interest for that year becomes due immediately. “No payments ‘til January” may mean that, come January, you either pay off the balance or make huge monthly payments at outrageous interest rates. The large print giveth, and the small print taketh away!
Another obvious concern is whether what you’re buying is so inferior, and/or so overpriced, that the pie-in-the-sky credit offers are the only way the merchant can unload it!
Debit Cards
One way to have most of the convenience of a credit card with little of the temptation is to use debit cards. The majority of merchants will accept these, even for purchases over the phone. Instead of actually borrowing the cost of what you purchase, as when you use a credit card or charge account, you’re authorizing the merchant to withdraw the money immediately from your checking account. Of course, you must remember to enter the purchase in your check register to avoid overdrawing the account, and the debit card may not be useful for renting a car. But you can always use a major credit card for security when you rent the car, then have the rental company take your debit card for the actual costs when you return the car.
In summary...
I’m not telling you to never buy anything or credit, or to cut up all your credit cards. What I am telling you is that misuse of credit can be very dangerous. It’s been the pitfall that sent former offenders back to prison. In my opinion, more attention should be paid to the use of credit in rehabilitation programs. For any of us, it can make life unnecessarily difficult. Almost all credit users need to be more prudent with how it’s used.
A quick quiz...
Just to see if you’ve been paying attention.
Suppose you have that credit card account with a 21.9% interest rate, and you have a $5,000 balance. This month you put $300 in new charges on the account, but when the statement comes, you also pay $300. So at least you’re staying even, and not going further into debt. Right? Think about it before you read the answer.
Not yet. Think about it some more.
The correct answer: Wrong. For that month, you owe $91.25 interest on the $5,000. Unless your account has a “grace period,” and your $300 payment made the deadline, you’d also owe some interest on the $300 in new charges. So at the very least, your balance has grown to $5,091.25. So next month you’re charged more for interest, $92.92. And further you go down that slippery slope! |
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