In the article entitled “Help with Credit Card Debt,” Gerri Willis, CNN’s personal finance editor, brings to our attention a new public relations move by a credit card industry trying to preempt a new regulatory system that will negatively impact their ability to make money. Quite simply, credit card companies banded together and put up a new website for consumer help. One of the goals of this site – HelpWithMyCredit.org – is to provide consumers with easier access to credit counselors. But the site doesn’t mention that using a credit counseling service from their list can drive down your credit score.
Aside from the credit counseling issue, should someone with debt take the rest of the website seriously? Probably not. For one, those building the website may offer helpful tips, but perverse incentives underlie whatever they present over the Internet: their long-term objective as a business remains to extract the maximum profits from consumers through their product – credit cards.
Take for example the page on credit card basics with the headline “Why You May Need Credit.” While some of the pointers they list are truthful, the page stills paints credit cards as a necessary part of life. But for those that struggle under the weight of revolving and overwhelming debt, many of the items in the list described as benefits are in reality not worth the cost by a long shot. They write, “Spreading out payments on high-dollar items” as one of the needs. However, if you can’t afford a high-dollar item and it is not critical to survival, then don’t spring for it.
Yet another of their “needs” is “Making urgent repairs to your car or home.” While few will argue with the need to keep a roof one’s head, perhaps the repair costs on a house that is already too expensive to maintain, with unrealistic mortgage payments and certain foreclosure is not worth adding money into. It can be the best course of action from a financial standpoint, depending on the specifics to the situation, to not repair a home and instead transitition into a rental unit. For a car, the need for reliable transportation to and from work is essential to financial security. But repairing a nonfunctional window or a scratch on the paint job are not needs; keeping the engine and tires in shape are. Even if faced with cases in which one needs to shell out for a house or car, build and rely on an emergency fund instead of the credit card.
The site goes on to identify Internet purchases as a need. The merits to buying over the Internet are numerous and include likely better price points for products because of economies of scale, the vendor’s efficient access to the target market, and the seller’s costs of doing business online. But this doesn’t mean you need a credit card to get the goods. Consider using a debit card, check card, or storing cash on a PayPal account for transfer to the seller at the point of purchase.
What accurately captures the perspective of someone thinking clearly about HelpWithMyCredit.org is one of their final bullet points – “Carry only the cards you expect to use, and keep the others in a safe place.” Why should someone not just get rid of the other cards, to say nothing of the ones you use? The truth is many people face the real temptation to go and retrieve the cards from their “safe place” – safe for reckless spending – and get into even deeper debt. Here’s a better idea for someone that is unmistakably going to fall back into the plastic routine: to maintain a credit history, keep one card open with the largest credit line, then immediately cut it up, freeze it, or toss it into a bonfire along with all of the other cards you have. Get rid of them once and for all, with one credit account left open.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
