Re-thinking Credit Card Choices (Part 1)

Posted On: February 17, 2009

By Michael Killian, CardRatings.com Reporter

Editor’s Note: This article is the first of a two-part interview with Linda Sherry, the Director of National Priorities at Consumer Action.

Exceptional times often require exceptional measures to deal with events. No one doubts or questions the seriousness of our economy. Consumers are cutting spending and shedding debt whenever and wherever possible. The commercial market place is affected by this trend. What does this mean for consumers in return? What credit cards should they be considering? How can consumers pay down their debt?

Linda Sherry, the Director of National Priorities at Consumer Action, was very helpful in answering these and other questions.

Mike: Are you seeing one group of people more affected by the economy downturn than others?

Linda: I think everyone is hurting right now. Many people have retirement accounts and home values that have diminished considerably, all while dealing with tightening consumer credit. People are telling us that their credit limits are being cut, interest rates increased, and some customers with promotional rates are being hit with $120 annual fees unless they accept a higher interest rate. With the layoffs, many people are using credit cards to keep their family finances afloat.

Mike: Some financial advisors have suggested that openly discussing personal credit card debt is highly taboo. Have you found this to be true and could this be a stumbling block to recovery?

Linda: We hear from a lot of people who are burned by credit card companies. But I do notice that many of them aren’t prone to mentioning the outstanding balance amounts that they are carrying. I am often shocked when people tell me they are carrying $10K, $20K, and even $30K on credit cards. How did the companies allow people to carry balances of this magnitude? Why would people want to have these balances on their backs?

With balances like these, you have to wonder if it’s an addiction. Besides small business owners, who may legitimately use credit cards to build business and help cash flow, it’s not hard to imagine that people who have been allowed to run up $30K in credit card debt feel a little shame. In addition, there may be problems of self-esteem, depression, and shop-a-holism that allowed the balances to grow so high. A group like Debtor’s Anonymous can be helpful in these cases, if people can face up to the magnitude of the problem.

But personal responsibility goes only so far…the banks have a responsibility not to extend such enormous amounts of credit and not to suddenly change the terms to throw consumers into even a worse place financially with higher interest rates, fees, and punitive terms. Banks need to scrutinize new applicants for unsecured credit more closely. They really need to ensure that there is adequate income to repay unsecured debts.

This article was written by Mike Killian, Founder of Learning Credit and Debt Management. Mike has been writing about credit and debt management issues that are of importance to consumers for over 8 years. His articles have been referenced by various members of the media, including MSNBC and The Motley Fool. Mike has also offered debt elimination seminars to businesses and community colleges for many years.

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