June 17, 2009

Is that fair?

I just read this article, about credit card bailouts for individuals. Now, I'm a little angry. Maybe I shouldn't write angry, but too bad.
According to the article, some credit card companies are forgiving up to 50% of an individual's debt. One particular person was offered a 20% discount on his debt, which he declined, and a few weeks later received the 50% offer. A few weeks! Of course, many of the credit card companies wont comment on this great bargain, and official statements say that debt is a case-by-case situation. Yes, this debt forgiveness comes with strings - your credit card gets canceled and your credit report goes down the tubes. Really, you were already in debt, so your credit report already took a big hit.
You might be wondering why I'm angry about this. For multiple reasons, actually.
A few months ago, I read an article that stated credit card companies were starting to reduce credit limits, increase interest rates, or drop customers all together - this is for customers in good standing, no less. I don't recall the exact article I read, but this article from NPR says the same thing.
Having your credit limit lowered can hurt your credit score, and all you're doing is following the rules, paying at least the minimum amount (if not more) due. So, following the rules can actually hurt a person. Not to mention, that if your interest rate goes up (for no other reason than to help protect the credit card company from more risk), now you're paying more for the things you buy (if you don't pay the card off every month).
So, the way I see it: you follow the rules, you have a good chance of getting screwed financially. You have debt, hey, we forgive you.
I understand the credit card companies wanting to recover some of their loss, rather than getting nothing. I understand the logic and theory of the companies reducing their risk and covering their own butts. I really do, and I can't argue with the theory of it. What makes me mad is that good people who are actually paying what they owe, per the terms, are still getting screwed. And yes, there are several people who have great debt for valid reasons (lost a job, student loans, illness, etc), and I feel for them. I'm not saying that those in need shouldn't be helped. I'm not saying that the credit card companies shouldn't recover as much money as they can. What I'm saying is that these bailouts are benefiting the issues that got us there in the first place. Oh, you offered up risky loans to people to buy houses they can't afford? Ok, here's some money. Oh, you purchased a house and planned to grow into your payments, but now can't afford it? Ok, we'll take care of that for you. Oh, you have a bunch of debt racked up on credit cards? Ok, you only owe half.
Through all of this forgiveness and special treatment, who's really benefiting? Are lessons being learned? Are individuals and businesses really not going to make the same mistakes again? Economy's are cyclical, rising and falling over time. I think our current economic state (which I call a depression) is largely due to bad choices, exasperated by a cyclical economic down-turn. A lack of good judgment, informed decisions, and sound business practices - on both businesses and individual peoples parts - has created a sink-hole of debt. We just keep shoving more and more money into this sink hole, hoping that the ground evens out and a hill (economic upturn) begins to grow. As of yet, I see no hill. But, down the road, our taxes will reflect all of these bailouts. There's no way around it. That money will need to be paid back. Are the rule followers being punished? No bailouts for us, but we'll be just as responsible to help pay off the debt. Seems the squeaky wheel does get the grease.


doahleigh said...

I've always felt that way. I play by the rules in life, and I'm rarely rewarded for it. But I watch people screw up, get forgiven, and sometimes even get rewarded. It's so frustrating. Sometimes I think I should start messing up so I can get the perks!

the kilipino said...

The UN defines poverty as "the relative lack of access to public services, the financial system, and just about any other source of official support." Without the privilege of proper education, the impoverished are unable to make informed decisions, including decisions regarding financial matters. For decades, credit companies have taken advantage of impoverished people by offering them high credit credit limits, knowing that the individual will struggle to make minimum payments, allowing the credit companies to earn a profit off of the interest.

By disapproving of this bailout, we are continuing to oppress the less fortunate. Studies have shown that "a one-percentage point increase in growth will benefit poor people more in an equal society than in an unequal one." If we refuse to close this gap by not supporting bailouts, we are only continuing to keep the wealthy happy and inhibiting the possibility for advancement of the less fortunate.