Friday, January 6, 2012

The Credit Trap continues...

Here is a simple math problem.  An item normally sells for $125.  But because of the time of year, possibly Christmas, the store is willing to sell it to you for $100.  You don’t have the $100 and you don’t know when you will have it.  But with a discount like this, how can you go wrong when you have acquired a $25 equity in the item for nothing?

For the next year your cash requirements eat up all your income.  The only reason you have been able to purchase the $125 item for $100 is because you have a credit card.  How can you have been wrong in what you have done?

But lo and behold the interest rate on your card is 25%.  Assuming you make all the monthly payments on time and pay the entire balance each and every month, the 25% interest rate won’t be charged to you.  If you don’t pay the entire balance every month, you will begin to accrue interest and fees of at least 25%, that is $25 on the $100 you originally borrowed.

I could go on for pages making this little story more horrible.  But you get the point.

After making no payment on the principal for two years, the item that originally cost you $100 has now cost you $150 and you don’t know how you will ever pay the $150.  And as sure as hell, the item you bought for the $100 has now worn out and you need to buy a new one for another $100, which you also don’t have.  You’re in a race that you can never win.  

You’re in real trouble – real trouble for a long time – maybe the rest of your working life.

1 comment:

  1. So, what you have posted on your blog is TRUE! Are YOU going to do anything about it?