It's time to have that talk

"You have the same deterioration of credit standards, the same securitization of debt, the same leveraging, the same inability of people to pay. People are using credit cards as their cushion. We're set up for a consumer credit-card debt crisis if we do nothing."
-- Austan Goolsbee, Obama Chief Economic Advisor

The man, who shot to fame as the Obama insider who described his campaign's NAFTA stance as politicking rhetoric, is really on to something. With all this talk of sub-prime mortgages, debt of all kinds is finally emerging as a relevant economic issue. As much as it has always been present in discourse, there really has been no sense of urgency as it truly has become a part of our culture. As analysts, journalists and pundits alike, stress about the mistake made by granting such high risk loans to homeowners, I wonder why the issue of the credit card debt hasn't become a more prevalent concern. Considering, a credit card is granted far more indiscriminantly than a mortgage and the interest rate charged is significantly higher.

The Federal Reserve says Americans have built almost $1 trillion in "revolving credit." A customer known as a "revolver" is an individual that holds debt and doesn't pay it off each month. Edward Yingling, President of the American Bankers' Association, has referred to this as the "sweet spot" of the industry.

The habit of recklessly spending without being in touch if it can be afforded has quickly become a part of our culture in our ever-so materialistic society. Perhaps holding a postive correlation to the credit card companys' voracious marketing campaigns. Every individuals seemingly is inundated with material enticing them to get a new credit card. Zero percent for the first 6 months? Sound familiar? It goes on and on. The key is seeing what comes after these low introductory rates. Andrew Kahr, a credit card industry consultant, credited with introducing the 0% introductory rate and a lower minimum monthly payment, acknowledges that his reasoning for suggesting both these ideas to his client was to allow the customers to be able to take on more debt. Before his idea, credit card companies expected 5% of the principal owed to them paid back to them each year. He recommended that be cut to 2%. If the client just pays their minimum monthly payment each month, it'll take them years upon years to pay off.

What has been made clear by experts is that the true success of credit card companies comes in their ability to maintain their debt, which inflicts heavy interest charges. Shockingly (or rather, not so shockingly), twenty-eight percent of Canadians don't even know what interest rate they are paying on their credit cards. Folks, make sure you know.