Line in the sand - credit limit!

I seem to be periodically shocked when I hear yet another friend, another seemingly intelligent and rational friend, is sitting half over their head in credit card debt, another friend hit by 28% interest rates for 6 months for being late on ONE payment.

I think of my own emotional place, a fear of throwing money away senseless, a fear of being taken advantage of by evil greedy companies looking to use my well-being as their nest-egg onto easy street. I'm perhaps as vulnerable as anyone into looking for a good deal, one too good to be true.

What's not to like about a credit card? You spend money on things you need. You don't have to pay the bill until a month later, an interest-free 30 day loan! Plus, many cards have "cash back" percentage! AND amazingly, just paying your bill every month, you accumulate a "credit history" which allows you to borrow bigger money later in a home mortgage! It looks like a win-win-win-win offer!

Well, maybe always there's a dark side, and I pretend it doesn't exist. I see no reason to NOT pay off a credit card each month.

SURE, when I've seen crazy offers like 6-months 0% interest, I think, HEY, why don't I write a $5000 check to my mortgage, spend 6 months paying it off, and save money on my mortgage interest? Well, admittingly, even if there's no fees at all, it's only $125 savings, not really worth it to me.

Anyway, I try to imagine conditions where I'd appreciate the convenience of holding a balance on my credit card, perhaps to improve my short term cash flow - my gosh(!) property tax month can be harsh! I mean sure, I live by savings, but how much cushion do I need? And it's not like the savings account 0.5% interest rates are worth anything. So why not use a CC instead of a surplus savings? It works out to the same thing, assuming I can pay off the balance within a few months anyway.

So I scheme and wonder, and ultimately, coming from a place of financial strength, think "games" aren't worth my time or energy. So I might keep a bit lower savings knowing I could use a CC for unexpected expenses, I try to adjust my savings to cover everything knowable PLUS a bit more to cover the unknown.

Indeed, I'm basically in a place of surplus income. I've been self-employed, lived entirely off savings between projects, and had to be careful, but with a regualr job, I simply make more than I need, so I just have to decide what to do with it. For now I put all surplus into my mortgage, so my extra principle payments are adjusted to keep a healthy savings, and nothing else. If I have unexpected expenses, I reduce (or halt) my extra principle payments. A good life!

So I admit it is perhaps impossible for me to understand "the average person" who has designed a life that demands 101% of their income to make ends meet, and the fear of what to do when unexpected expenses come up. SO I forgive their apparent foolishness in holding credit card balances and throwing money away senselessly.

But it seems I must expand my opinions somewhat. Obviously there's a difference between "temporary strategic borrowing" and an "unviable lifestyle". I accept there's a continuum of compromises in these limits. But I wondered, can a line be drawn?

I ask BECAUSE credit card companies will NOT draw this line for YOU. Or I should say they draw the line for THEM. They'll happily keep raising your credit limit as you hold larger balances and keep up minimum payments. Plus if you get a few credit cards, you can keep expanding your credit line for YEARS and YEARS! You can fall down the slippery slope of unviability so slowly that you never see the point of no return, where you ought to admit there's no way in hell you're going to pay off this debt.

So, I see two issues (1) People who hold CC debt ought to have a PLAN to clear the debt within a relatively small period of time, like 6 months (good) to 5 years (horrid!) and (2) People who have a large CC debt and previously never set their own limit, must find one they like AND if there is no viable payback period, they should consider bankruptsy.

I don't know anything really about bankruptsy law. I heard it got tougher to be able to cancel all debts, that "ability to pay" can be considered. Personally I think bankrupsy itself is hard enough so CC debt should offer "NO PROTECTION" to CC companies at all.

I MEAN, if CC companies have bankruptsy protection, what incentive do they have to discourage excessive debt, to hold the line on a responsible credit limit and help people get out of debt? NONE AT ALL!

So, I don't know about laws, just common sense. AND if I had a debt that I could NOT pay off within 5 years AND they were playing games with my interest rate, I'd throw it back in their face and declare bankrupsy!

SO, in summary, I don't know what a "credit limit" should be, but I think it should be defined more as a "payback period" than amount. How much discretionary income do you have each month? If you take HALF of that, how fast can you pay off your CC debt? If it's over 6 months, you have a PROBLEM!

It really hurts me to see others throwing away their time and money. I know first hand that "family" help is harder in the short term, but if done well is FAR superior to depending on greedy bastard banks.

It's all scary to me. I wish we could rein in those cc bastards! Mass-bankruptsy is the only tool I know that can help them see the light. I hope it's possible!