September 7 – We talk about the national debt all the time, but another number that has continually been on the rise is individual credit card debt.
It has now collectively reached over $1 trillion.
Pat Ryan of NewsTalk 103.7FM pointed out, “You default out of a 30 day pattern and your credit rating would certainly take a hit on that. I don’t know how they don’t have some sort of mathematical equation. You’ve paid your bills consistently every time and all of a sudden, you’re in trouble one time. You should get something that says all right, on the equation, you’ve been very good, you’ve been early or you paid even more on the thing and all of a sudden we’re into a little bit of a corner here for one time only and yet it still affects your credit score. How come they don’t have a sort of equation that might give somebody a save on that?”
Attorney Clint Barkdoll agreed, “I’ve always wondered, your credit score, which is known as your FICO score, that’s a private for-profit company, the Fair Isaac Corporation that does a formula that calculates that score that all of the credit bureaus use. They’re a publicly-traded company. They make millions and millions of dollars and I’ve never understood why there’s never been an effort to either regulate them or open the market to other agencies that might assign credit scores, but it seems like Fair Isaac, FICO really has cornered the market.”
The credit card debt has particularly been ballooning in the last year or two.
Barkdoll said, “As we know, the interest rates on these cards are just tremendous. So someone who’s not paying that balance off every month, you’re likely getting hit with 15, 20, maybe even 25 percent interest on that unpaid balance on an annualized basis. So as that number keeps growing, if you have a credit card arrearage, it is really important to try to get that paid off quickly because it’s costing you a lot of money over the long term.”
Michele Jansen of NewsTalk 103.7FM suggested, “I think there’s a reason credit cards are being more strict right now because they don’t want to get caught holding the bag. If things really go south and they’ve got tremendous people in debt, that’s going to be very bad for the credit card companies. It’s interesting that one of our national hosts, Glenn Beck, yesterday was talking about the fact that he has a Black card by American Express and you get the by invitation only, certainly use it for big purchases. It’s supposed to be limitless. But you do pay it off every month, I believe, and he said he has. He was traveling and wanted to make a purchase of a suitcase that cost $200 and he got a call from them saying you need to pay off your balance. He’s like what are you talking about? I’m not late. But he sees it as a sign of all of these credit card companies, including for people who have lots of money. They’re worried. That should give us a little concern about what’s really going on with this economy.”
Barkdoll added, “Well think about a trillion dollars in aggregate debt and if people default on that, just never pay it back, well, that’s getting absorbed by these big credit card issuers and that’s going to get passed back along to everyone in the form of higher interest rates, maybe higher credit card transaction fees. Have you noticed more and more vendors, they will not accept American Express. I guess their fees are higher for you as the vendor. So I see a lot of businesses that will say we gladly take your credit card, but it can’t be that one because they don’t want to pay that higher fee. So I think these companies need to be savvier. I’m sure this big number has to be a concern and I’ve not seen the granular details. What is the default rate? How many of these are more than 30 days past due that they’ll never collect? It certainly would be in the billions of dollars.”
PA Representative Rob Kauffman said, “It’s huge. It’s huge. This is absolutely a result of what has been happening on the federal level. The way they’re spending money, which brings me to the deficit this year is now going to be, the US deficit, $2 trillion. The way we spend money, the way inflation has been out of control and the way Americans are attempting to deal with it and they’re spending on credit. The example is the US government who is $2 trillion dollars more in debt this year and that kind of spending is what is making it harder for average Americans, average Pennsylvanians, average people here in Franklin County to pay the bills.”
An interesting question to all of this is what are students learning in universities?
Kauffman said, “In these universities, are they teaching modern monetary policy or theory, or are they actually teaching economics? What are they using?”
Jansen said, “We’re being lied to about what’s going on with our economy.”