Addicted to credit
Levels of consumer debt are out of control, but we just keep charging. Host Tess Vigeland asks Stuart Vyse why Americans are so comfortable putting almost any expense on plastic.
Credit cards (Peter Macdiarmid/Getty Images)
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TEXT OF INTERVIEW
Tess Vigeland: Earlier in the show we reviewed how some credit card companies are making it harder for some to pay off their bills. But when and why did we become a nation so tied to credit?
Stuart Vyse might have an answer. He's the author of the book "Going Broke: Why Americans Can't Hold On To Their Money."
Stuart, we seem to be inordinately comfortable with the idea of being in debt. Just put it on plastic, right?
Stuart Vyse: We do purchase now anything on credit. It used to be the case that borrowing money was good for only certain kinds of activities -- for an asset, for a home. Now we're told that the experience of a baseball game or anything is priceless. And of course, we do have a commercial economy. Unfortunately, we can't sustain that forever.
Vigeland: Indebtedness really doesn't generate much compassion, does it? I mean, is there really a difference between the person who makes $100,000 and simply doesn't save and then has a massive health crisis that health insurance won't cover and so they end up in bankruptcy and the person who, on the other end of the spectrum, is making $20,000 and simply goes into bankruptcy because they can't afford daily expenses? Should we think about those those two things differently?
Vyse: Yes, I think we should. The person who has more resources, has a big income, obviously should be able to avoid bankruptcy For the most part, they do. People who have higher incomes don't end up in bankruptcy court very often. But the problem is we have many people who are on the lower half of the income curve very much saddled with debt. And let's remember that on the other side of that equation a lot of money is being made. The credit card divisions of most banks are their most profitable part of banking. So they're making a lot of money off of these people who are unfortunately living a very anxious life day to day trying to figure out which bills to pay this month and which not.
Vigeland: You had your own experience with debt. How bad was it and how did you manage to get out?
Vyse: I acquired about $12,000 in credit card debt over a period of years. My kids were young, I was starting out with my family and I went through a divorce and other things. But I was lucky in the sale of a home and this is how many people have gotten by in the past. I was able to sell a home and get out of debt and I've remained out of debt since then. My story shows, I think, how first of all common it is to be in debt with large sums of money that you think you're not going to be able to pay off. So I'm lucky -- I have a very good income, I'm a college professor who's tenured; I'm not going to lose my job. But not everyone has that advantage and that's an important advantage in this world of debt.
Vigeland: The final chapter of your book is titled "How not to go broke." Can you give us the lowdown?
Vyse: Sure. Most importantly, save. And the thing to do is to set up a savings plan that is automatic, that is taken out of your pay, hopefully before you ever even see it. The other thing I would recommend that people should think about in today's world is ask yourself just as you're about to make a purchase, "Do I need to do this right this minute?" We overvalue things we can have right now. And actually, the big things in the future like a retirement and a comfortable life in your dotage, those are worth a lot more than that thing that you're looking at right now.
Vigeland: Stuart Vyse is the author of "Going Broke: Why Americans Can't Hold On To Their Money." Stuart, thanks for coming in.
Vyse: Thanks for having me.
Comments
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From san diego, CA, 12/18/2008
Please provide the REASON(S) given by the credit ratings companies for LOWERING the credit score of someone who cancels one (or more) credit cards. This behavior was mentioned twice, but, no explanation provided. Obviously, although the companies interpret card-cancelation negatively, it could represent very responsible behavior. WHAT GIVES?
From Portland, OR, 12/05/2008
The message I'm getting is that in the U.S. we are required to have credit cards in order to maintain a good credit rating. But, even those who use cards responsibly - pay off their balance each month - are prey to the whims of the card issuers who change the terms (due date/time, credit limit, etc.)in order to extract a little more from us in fees, finance charges, whatever.
We swore off credit cards almost 8 years ago. When we refinanced our home last year our credit scores were in the upper 700s to low 800s - excellent by my understanding - yet we were dinged for "insufficient revolving accounts," and "too many inquiries," (exactly one inquiry).
Why should I use and support a system whose rules are constantly in flux and are capricious to the point of absurdity? Why are those who conduct their commerce on cash terms punished for this?
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