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| CREDIT CARDS: BLESSING OR CURSE? May 30, 1997 |
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Your questions were answered by Independent financial advisor, Dave Ramsey, and by the American Bankers Association.
Should we pay off our debt or declare bankruptcy? How can bad credit be repaired? Should I take out a loan to pay off my credit cards? At what age should parents allow children to have credit cards? Should there be more restrictions on who can get a credit card? How do banks assess who can get credit, and who monitors the banks?
NewsHour Backgrounders
November 29, 1996
Economics correspondent Paul Solman analyzes rising consumer debt in the U.S.
EXTERNAL LINKS:
American Bankers Association
Financial advisor Dave Ramsey
The Federal Trade Commission working paper on choosing and using a credit card.
The Federal Trade Commission working paper on solving credit problems
Consumer Handbook to Credit Protection Laws written by the Board of Governors of the Federal Reserve System.
Victims of Credit Reporting, a non-profit group, has a list of interesting credit related links.
Nerdworld has a library of credit/debt management links.
A question from Jim Dwyer,
Monrovia, CA:Virtually all of the advantages of credit cards can be maintained, and all of the disadvantages avoided, by the simple restriction of spending with credit cards to the balance in a linked bank account.
The problem with the current cards is that persons are essentially borrowing money without the act of borrowing being a distinct and seriously considered event.
Cards of the current sort should be restricted to persons with large savings accounts or a lengthy history of credit card use without accumulating balances.
Could you please comment?
Financial Advisor Dave Ramsey responds :
Jim, you are my kind of guy. Spend only the money you have and no more. If you don't have it, don't do it. If you don't have the money, stay home. What an idea. It sounds so simple to me.
You are exactly right. The Visa and MasterCard debit cards are the only type of cards we recommend. We do not even recommend regular use of these cards except in traveling situations or when placing orders over the phone when credit card number is required. We have found that even people who "pay" their credit cards off spend more. A recent Dunn & Bradstreet study shows that you spend as much as 64% more because when you lay down a plastic card versus a $50.00 bill (that you will not get back) you do not emotionally register tire pain that you do when you lay down cash. When you use cash it hurts and you tend to spend less. Cash is visual and emotional and a great behavioral management tool, which is what personal finance is all about anyway. Great question, Jim.
The American Bankers Association responds :
I think you are talking about secured cards, which are great products for people who need to limit their spending or are trying to rebuild credit after bankruptcy or severe debt problems.
One of the best things about the financial services industry is the choices that are created by the thousands of competitors. Whether you want a secured card or a traditional credit card, both are available with hundreds of variations on interest rate, annual fee and enhancements such as frequent flyer miles and rebates.
Each person has the right and the responsibility to pick the card that's right for them and use it responsibly.
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