Living on the credit chain

    If it looks too good to be true, it probably is, or so the saying goes.

    Pat Leung
    Guardian

    There’s a reason we have these age-old sayings in common use; they tend to be true. Examples of the aforementioned truism are easy to find: those annoying 12-free-CD cards in the mail. Coupons in the Student Dollar Stretcher that advertise a free sandwich (with the purchase of two beverages and a sandwich of equal or greater value).

    The recent contract between Apartment Investment and Management Company and Visa Corp. could be such an example, only with far more disturbing implications.

    Nearly a million tenants now can use their credit cards to pay rent, thanks to an arrangement between Visa and the largest U.S. property manager, Chicago-based Aimco. The program has spread to all 337,000 AIMCO units, which house tenants in 46 states.

    Besides having their rent payment automatically charged to their credit card each month, tenants can use their Visa credit or debit cards to pay one-time costs such as security deposits and application fees. Renters benefit by avoiding late fees, and Aimco finds its units easier to rent because tenants don’t have to pay move-in costs with cash.

    These conveniences don’t outweigh the negative impact that further encouraging a dependence on credit cards will create.

    Credit cards were meant to be a form of convenience, not an economic crutch allowing people to scrape by from paycheck to paycheck, while debts and interest mount menacingly in the background. The idea of habitually and regularly using a credit card to pay for rent is not only laughable, it’s disturbing.

    There are currently 1.4 billion credit cards in circulation. Americans already charge three times as much as they did 10 years ago — about $1.5 trillion was charged last year, compared with $500 billion in 1992.

    It would be one thing if charge cards were being paid off regularly, if people used plastic because they didn’t have any cash on them, or because writing a check was just too much effort. Instead, charge cards are used because people simply don’t have the money, but can’t wait to buy. This is the case for the majority of people paying with plastic.

    Most consumers are charging more than they’re willing — or able — to pay back every month. Unpaid balances on credit cards are more than twice as high as they were in 1992: $8,367 per card-carrying household, compared with $3,444 a decade ago.

    Unfortunately, more and more consumers are falling behind in their payments, industry statistics show, and the number of bankruptcy filings hit a record high of 1.5 million last year. The only people who should even consider charging monthly obligations to a credit card are the consumers who regularly pay off their accounts in full, avoiding the monthly fees and rate hikes. Otherwise, the recurring payments will accrue interest at rates that average 17 percent per year and can easily jump to 29 percent.

    One has to wonder about two things — first of all, isn’t it entirely possible that, keeping these numbers in mind, credit card companies are capitalizing on the tendency of the average American to postpone immediate payment?

    Such businesses don’t make money off the responsible people who pay off their bills every month. They depend on people who are living paycheck to paycheck, people who are buying now but can only pay later. It would be a huge plus for the credit card companies if they expected households to be unable to pay off their rent, and then to be forced to put up with ever-mounting interest and debt. It’s a trap that’s ensnared too many people already, and to which too many others could easily succumb.

    Second, the notion of rent paid via credit cards makes one wonder about the mental capacity of credit card users and their reasons for signing up for such a program. The growing popularity of the idea shows lack of foresight and lack of common sense on the part of the consumer.

    Despite the clear presence of negative consequences, the idea of using plastic for monthly bills is catching on. One out of every three consumers used credit cards to make at least one recurring payment in 2000 — typically for gym membership, Internet service or newspaper subscriptions.

    This could be the start of a downward spiral for people who already depend too much on credit cards. It’s easy to see how putting the monthly rent on a credit card will drive debt-ridden consumers deeper into the hole. The sad truth of the matter is that people aren’t using cards for convenience: They’re doing it out of desperation, which says something about where the average consumer is headed.

    Depending on credit cards is a sign of economic ignorance. Too many people have a “”buy now, think later”” attitude, and already subscribe to the idea of procrastination as much as possible. But just like anything else, from term papers to studying for finals, putting something off means putting up with the consequences.

    Relying on credit cards demonstrates irresponsibility. It shows an inability to think ahead, a miscomprehension about how to manage money.

    It is important to look ahead to see who benefits from the deal. Visa is winning on many levels — in a market that’s basically saturated with people who already have cards, it has created another channel of revenue for itself.

    For Visa, the agreement means regularly scheduled payments from those who can pay, and the ability to soak those who can’t. Aimco benefits because it is bound to receive some form of payment from someone, be it with or without the presence of the middle man. The only possible loser is the consumer, who becomes, once again, the hapless victim of two capitalist giants.

    Before getting swept up with the idea of convenience, one should look at the reality. The convenience isn’t worth the risk of sinking into debt. This is a situation in which it’s necessary to read the fine print.

    For a lot of people, being able to put rent on the charge card seems like a deal that’s too good to be true. In the long run, it probably is.

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