Watchdog column: Dave Ramsey gives Seadrift man, all credit card advice
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HAVE A QUESTION FOR WATCHDOG?
To submit questions, e-mail watchdog@vicad.com, post them to the "Watchdog" blog or call Advocate Public Service Editor Gabe Semenza at 361-580-6519. No topic is off-limits.
H.A. Clayton should have listened to Dave Ramsey before he signed up for those credit cards.
Clayton, a 71-year-old Seadrift man, contacted the Advocate to say one of his three credit card companies called him with worrisome news. Someone used his credit card to make illegal purchases, he said he was told.
To fix this, the credit card company told him he'd need to activate a new card, he said. When he activated the new card, his interest rate jumped from 7 to 18 percent, he said.
Then, he received statements from two other credit card companies notifying him the interest rates on those cards would greatly increase, too, he said.
Because Clayton failed to provided me with documents to support his claims, I choose to keep the credit card companies unnamed in this story. Those companies declined comment.
I illustrate Clayton's complaints to discuss credit cards in general.
To do so, I contacted Ramsey, a personal finance expert and syndicated radio and TV show host.
Via his radio and TV shows, books and programs, Ramsey teaches millions of Americans common sense reasons for avoiding credit cards and debt, and about the power of saving your money.
Is Clayton's scenario common?
Dave Ramsey: We've heard all kinds of horror stories involving credit card companies. The bottom line is the credit card companies are in business to make money. You can't beat the system. If you play with snakes, you'll get bitten.
What advice would you give to Clayton and others regarding his scenario?
First, he needs to tell the credit card companies that if they don't lower his interest rate back to where it was, you'll move to another company. But only transfer the balance long enough to pay it off. Stop using credit cards.
Then, he needs to set aside $1,000 in an emergency fund as soon as he can. Then, I would have him cut up the cards and pay them off using what I call the Debt Snowball approach. List your balances from smallest to largest. Pay the minimum amount on all your accounts, and put any extra money you have toward the smallest debt. Attack the smallest debt until it's paid off. Then roll that money over to attack the next largest debt on your list.
As each debt is paid, you keep the money rolling over to the next and by the time you reach the last debt, you'll have an avalanche effect.
What general advice do you have for credit card users?
Credit cards are not a wealth-building tool. It's not your money, and there's no benefit to using someone else's money. There are too many risks involved.
Plastic is too easy to whip out of your wallet every time you think you want something. When you actually have to count out cash, you literally feel the money leaving your hands. You'll spend less when you pay cash than you would paying with plastic.
What new or soon-to-be-enacted credit card laws should people know about?
The new credit card law is coming in two phases. We've already seen the first rules go into effect on Aug. 20. Credit card companies had to start issuing bills 21 days in advance as opposed to 14 days in advance. They also had to start giving you 45 days notice before raising your interest rate.
Starting in February 2010, the second phase of the new credit card law will take effect. Credit card companies will not be able to raise your interest rate on an existing balance. And, if your balance has a variety of interest rates, your payment will be applied to the highest rate first. It's very difficult to win in a situation like this, let alone get ahead on paying down debt.
Gabe Semenza is the public service editor for the Advocate. Contact him at 361-580-6519 or gsemenza@vicad.com, or comment on this story at www.VictoriaAdvocate.com.
Comments
Manoffaith...You're so right about the credit card companies. But, as you say, the government is involved, too. The government is saying that people are now saving TOO MUCH. They're saying that if people don't start buying, the economy can't recover. The biggest abuser of credit for all time is the US government and they are now telling citizens they need to spend more even though they can't afford to buy big ticket items. The insanity starts in Washington.
Ikr12345...I agree with you about responsible use of credit cards. My wife and I use'em, but we don't carry a balance over to the next month. Credit, per se, isn't a bad thing. The bad thing is irresponsible use of credit and the credit card companies are the ones who urge people to be irresponsible -- then, when they do the irresponsible thing, the companies jack up the rates as punishment for doing what the companies wanted them to do in the first place.
October 13, 2009 at 7:52 a.m.mirha494
Credit Card companies spend millions of dollars each year marketing their products. They do not want people educated because they understand most people are too lazy to read things like the fine print and that alone causes more people to fall prey to their loan shark schemes. I do financial counseling and I can assure you the problem with credit cards are worse than it seems. The new law preventing credit cards will not have much effect on consumers. These companies know that if a 23 year old college student racks up bills and cannot pay; the parents will pay the debt for them. This is why these companies are allowed on almost every college or university in the world. These companies are filtering credit cards and debt into the mines of our children also. As a child we grew up having toy banks and now Barbie comes with her own VISA. Marvin Spurlock produced a movie called "Maxed Out" which is certainly worth seeing. Debit cards work well as Dave Ramsey says.
October 12, 2009 at 5:14 p.m.The problem is not with the credit cards, but with people that are not educated well about the different risks. Hopefully the new credit card law will create a better future for our youngsters as it will stop people younger than 21 years to sign up for a credit card without having an adult guaranting that he/she can pay back the borroweed money. I agree that there are many sneaky credit card companies out there but we must also realize that it is our own responsibility to maintain a healthy economy and not sign up for the first credit card offer that comes in our way and start to spend!
October 12, 2009 at 2:59 p.m.http://think-creditcards.com
This is a very good story Gabe. Some people may do well with credit cards but most don't. Dave Ramsey has helped change America and for the first time in many years Americans are concentrating more of paying debt down and saving money. Credit companies are not your friend and these people prey on the elderly, children and individuals with credit problems. If we could instill in America to save for what they want to buy and don't spend more than you make we will have a better America. A good example of credit abuse is our Government. We are currently allowing them to finance our next generations life away all because of credit. The current administration has a VISA and their proud to use it. These are the same guys who let these companies take individuals to the cleaners. We need to wake up America; be responsible, accountable so that we can pass on good financial traits and never get in the mess again. If anyone wants a sure way of getting extra cash, buy a lawnmower and cut grass, work at McDonald's but don't gamble with your hard earned dollars.
October 12, 2009 at 1:40 p.m.I've used credit cards for 35+ years and never paid a dime in interest or fees of any kind. In recent years I've made close to $20k in cash back. While this is not what I'd call 'wealth', it sure hasn't hurt! I choose to play with snakes, and as yet haven't gotten bitten once. Yes, they hiked up my interest rates in the past 6 months, but you know what? I don't care as I don't carry a balance. I don't spend more with a card than with cash because I make a list of what I need before I shop, and stick to the list.
When a friend and I got mugged, he lost several hundred dollars. I lost nothing as I was carrying credit cards only.
With responsible spending credit cards can be a great way to make a little extra cash.
October 11, 2009 at 3:19 p.m.