Whose to blame for growing consumer debt? (A rant)

[The following is snipped from a post I made in co.general. The issue is who is responsible for the massive unsecured debt problem that is plaguing American consumers – especially those in the middle-class (of which I am one). The debate was prompted from the proposed changes to personal bankruptcy laws.]

There is blame to go around. There are three entities that can share blame:

1) Consumers – consumers are getting too deep into debt on credit cards

2) Credit card companies – they are making it too easy for people to get credit cards, and are extending too much credit to consumers. Then, when people can’t pay off their balances monthly, companies increase the consumers interest rate. Then, when the consumer makes a late payment, the company adds in a later charge, which ends up increasing the consumers balance, which further delays the consumer being able to pay off their balance.

3) Government – The current administration is stripping away a lot of the protections that had been granted to consumers, while failing to take new actions to protect consumers.

I lay most of the blame on the credit card corporations. They’ve taken the fact that it is almost necessary to have at least one credit card nowadays, added it with the basic American concept that buying stuff is good, and created a trap to bleed consumers dry. I’d say that 50% of the problem is caused by them. Another 25% is caused by consumers themselves, for falling into the trap and not doing something to get out. And 25% is caused by the government, for failing to protect consumers and failing to make credit counselling more accessible.

I also see changes that each entity can make to help correct the problem:

1) consumers can stop using their credit cards! Pay off the balance, then use the credit cards only for emergencies or situations where you can pay off the balance within a month.

2) credit card companies can do a lot. First, they can stop punishing people who make a late payment to someone else. If they aren’t late to pay company X, then company X shouldn’t be able to raise their interest rate. Second, they can put an actual cap on interest rates. Anything over 20% is highway robbery, pure and simple. Third, they can stop granting such unrealistic credit lines. If someone only makes $20,000 a year, a $2,000 credit limit is far too high, especially if that person is paying rent and a car payment. Fourth, they can stop trying to sucker more people in. Stop with the “10% off all your purchases at Wal-Mart today if you get our new Wal-Mart credit card” type promotions.

3) First, put a limit on the abuses a credit card company can do. Set a cap on how high an interest rate can be (say, 25%). Second, get rid of the universal late payment garbage. Third, standardize late payments and when they can be applied (for example, I can be 15 days late on my car payment without a fee, but if I’m two minutes late on a credit card, I get billed). Fourth, the government should be promoting its own credit counselling services, and providing credit education services for consumers.

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