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Credit Cards: Debt Made Easy
Not many years ago, people didn’t buy when they couldn’t pay. Today, things are different. People do buy when they can’t pay. Instead of reaching for the wallet or checkbook, then making sure they have enough money to cover the cost, they take out a piece of plastic-usually one of many-sign a slip and walk away with the purchase, forgetting about the cost until the monthly bill arrives.
Then, if they can’t pay the entire bill, they pay only a bit, deferring the full cost, sometimes for months and years, adding interest and other fees along the way. As far too many people can testify, eventually interest and fees can add up to more than the cost of the original purchase. Multiply that by a pocket-full of cards and you have trouble.
Credit cards have become such an essential part of today’s life, though, that you almost can’t manage without one. Credit cards are required to rent cars, reserve hotel rooms, buy airline tickets, shop on line or by phone, even, in many areas, to open a bank account.
They are so familiar, and so widely used, that many people don’t stop at one or two, especially when bombarded with offers for cards with low interest rates, rebates, points toward purchases or airline miles. No source seems to keep an up-to-date count of just how many credit cards are in use or how many different cards people have, but one study by the credit reporting agency Experian showed that more than half of the population has two or more cards and some 14 percent have ten or more cards.
Another survey, by the National Foundation for Credit Counseling, documented the growth of credit card debt from an average household monthly balance of just under $3,000 in 1990 to $8,500 in 2003. At the time the credit limit for the 475 million cards then in circulation approached $2 trillion.
Buying on credit has a long history, but the use of actual cards began in the late 1930s when companies started accepting cards from other companies, at the time mainly for selling gasoline to automobile owners. Diners Club issued the first general purpose card in 1950, followed quickly by American Express and Carte Blanche. These early cards were, more aptly, “charge” cards than “credit” cards, for the entire amount was due with each statement.
Using “credit” to pay only part of the bill each month started in the late 1950s when the Bank of America launched the BankAmericard, forerunner of the Visa system. Next was MasterCard, established by a group of banks that issued credit. No longer tied to a local bank, credit cards gained quick popularity, especially with a mobile population that could now travel, and purchase, without taking credit and funds with them.
Since then, the numbers and types of cards have proliferated. Popular variations include Co-Brand and Affinity cards, many of which have a reward system-cash back, discounts, airline miles, points toward car rentals or hotel rooms, etc.-or the promise of a percentage being returned to the Affinity group, often a university. The combinations led to more card usage, and more easy debt.
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