Credit Cards & Responsibility

October 12, 2006

Offering a free t-shirt or fleece or coffee cup or toaster in exchange for enrolling, and extending credit to an 18 year-old college freshman with no job, no credit history, and no sense of financial responsibility isn’t a good idea? This is not rocket science. But it’s hardly worthy of a congressional investigation.

Consumers aren’t aware of the terms & conditions of their contractual obligation? Big deal. Alot of small & medium sized business don’t realize that by not taking advantage of a standard 2/10 net 30 discount on accounts payable, their cost of “borrowing” is usurious.

It is not Visa’s fault that you didn’t take the time to read the contract, or the time to understand the contract.This is not rocket science, people: read the fine print. If you don’t understand it, find someone who does. If you don’t know anyone who understands it and can explain it to you, you probably shouldn’t have a credit card. You wouldn’t sign any contract I handed you written in French, unless you could read & understand the french language. Ignorance does not absolve you of your obligations. Neither does stupidity.

I’m not being disingenuous. There are as many credit card schemes as there are digits in pi. No interest for 6 months. Low interest rate until the balance is paid in full. Balance transfer fees (or not.) Late penalties vary. Minimum payments vary. Interest charges vary, and change either in response to market demand, or in an attempt to induce more credit spending. No amount of regulation is going to prevent whatever schemes they come up with next. No amount of red-tape is going to prevent 18 year-olds from racking up hundreds and thousands of dollars worth of debt at McDonalds and Abercrombie. No bureaucracy is going to prevent irresponsible people from using credit cards irresponsibly.

The most important thing that anyone needs to know about using credit cards is this: If you pay the balance in full at the end of the month, every month, your cost of borrowing is zero. You’ve borrowed money for 30 days, and paid nothing for it. If you’re responsible enough to do this, there’s an arbitrage opportunity for you if you coordinate your time deposits accordingly.


Posted in: Potpourri

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