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Is The Credit Crunch The Next Bubble To Burst?

By Erik Folgate

JLP from All Financial Matters made a great insight about the next financial bubble we face in the United States.

Much like sub prime mortgages are packaged together and sold to large financial institutions to earn from the interest of the borrowers, credit card debt is also packaged together and sold off to larger financial institutions to reap the benefits of the hefty interest rates that borrowers pay. if you think that unscrupulous lending practices were taking place in the sub prime mortgage sector, you don’t even want to know about the credit card lenders. Credit card lenders send applications to ANYONE and EVERYONE. Dead people, dogs, people with zero money to their name, children, and any other social security number they can get their hands on. Credit card companies have spent the last thirty years literally trying to financially drive this country into the ground. We’ve seen the statistics of $600 billion dollars of credit card debt in this country, and it is no joke. This is a bubble waiting to happen.

JLP calls it a “standard of living” bubble, and he is exactly right. The “buy now, pay later” theme of consumer goods such as furniture, electronics, clothing, and other accessories are bought every day on credit. Credit cards have taken away one of the most fundamental principles of personal finance which is, “buy what you can afford” and replaced it with “buy it if you can afford to make the payment”. No longer do we evaluate if we can afford a large ticket item based on the price. We evaluate it based on the monthly payment, and that is horrible. The credit card bubble is slowly creeping up on us, but no one is talking about it. If the government does anything to hinder credit card companies and the packaged debt that floats back and forth from one large financial institution to another, we could see another slump in the economy. The only difference is that this would be a good slump.

You know that I am a strong advocate against the use of credit cards. I think they do more harm than they do good for individuals and the country as a whole. They offer an artificial boost in the economy, and they drain the bank accounts of Americans. Take the time to think about what the unethical practices of mortgage brokers and banks did to this country with the real estate bubble. Then, think about what credit card companies could do to this country.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • Mike

    Credit cards can be bad for people who don’t know how to use them effectively, but for people who know how to manage their money they are a great tool.

    I pay no yearly fee on my credit card and pay off the balance every month. That’s the equivalent of getting a 30 day interest free loan while the cash I could have used instead of the card accumulates interest in a savings account.

    A month’s interest is only a few cents, but if you watch your pennies your dollars will take care of themselves.

  • Christina

    I’d be more sold on credit cards if the terms and conditions were correlative to my credit history and score. As it is, my credit score improved to the 800s, I got great terms from a local bank and a credit union, yet the grace periods on my cards went from 25 days to 20 days once my credit card issuer was acquired by Bank of America. Also, mandatory arbitration was introduced in terms and conditions agreements.

    It confuses me that “balances and APRs” on my credit card were responsible for raising the APR for check cash advances 21.99% to 24.99%: I hadn’t used the card since 2004, hadn’t been late making a payment, had a $0 balance.

    It’s one thing to raise rates on risk pricing or poor credit history: it’s perplexing to see rates and more restrictive terms applied to near-stagnant cards: how does F.I.A. (the credit card division of Bank of America) think these terms and conditions will attract more frequent usage?

  • ekrabs

    I too am in the camp of “credit card can be a useful tool if used correctly”, but I fully agree that I believe more people are using it incorrectly than not, and have racked up an frightening amount as a result of it. It is an epidemic that may be bubbling over, if it hasn’t already.

  • http://[email protected] DARRELL MILLER

    Collections Department:
    Your settlement offer of $1,840 is rejected and expired April 8, 2010. The settlement offer is another unlawful collection attempt of a disputed, unproved debt (money loss), a violation by Wells Fargo Financial National Bank of The Fair Debt Collection Practices Act.

    Wells Fargo Financial National Bank is also in violation of The Credit Card Accountability Responsibility and Disclosure Act, as Wells Fargo is billing me for interest on interest (double cycle billing) in addition to the alleged principle of $3,050, which is now an alleged balance of $4,600.70, that minimum payments will increase to $6,000 in 3 years.

    Wells Fargo Financial National Bank has violated The Fair Credit Reporting Act by reporting a disputed, unproved debt to a credit reporting company.

    Ralph M. Hawtrey , secretary of the British Treasury, States: “Banks lend by creating credit. They create the means of payment out of nothing.” Wells Fargo Financial National Bank “paid” for my $3,050 purchase with credit created out of nothing with a bookkeeping entry before I accepted any terms by activating their credit card. Wells Fargo has paid no money and cannot prove a money loss (debt).

    Activating the credit card to approve of Wells Fargo‘s transfer of bank credit (not money funds) to the seller to be used as money (when it is not money) would make me complicit in passing counterfeit money. Using a manufactured credit card as money when it is not money is passing counterfeit money which results in a double payment for each purchase (one to the seller and one to the bank).

    This doubling of purchasing power for each credit card purchase and mortgage loan causes ongoing inflationary devaluation of the dollar. Bankers double-purchasing-power loans resulted in middle class savings and job losses with a mortgage bubble. The panic is now being followed by a growing credit-card-debt bubble for which Wells Fargo can collect another $25 Billion of taxpayer money (with paid for congressmen) to keep financing banker exploitation of We The People.
    Darrell Miller

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