The Credit Trap 

There’s a sentiment among the majority of my generation, the ‘millennials’, that says poverty and debt are the norm. And, of course, for some of us, it is even more crushing-our society does not dole out kindness equally, and it is plain fact that certain groups in our country are made to always take the short end of the stick, this are being no exception. It’s entirely normal to trudge around laboring with this omnipresent financial weight on our backs; it’s normal! We joke about it. It’s a meme. It’s so normalized in fact that few of us, at this stage, have given any particular thought into just how we might actually relieve that weight. Be it the shackles of credit cards, student loans, or some damning combination of the two, in this essay I will be delving into some possible solutions to the looming specter on our shoulder, as well as some of the societal factors which contribute to our financial burden. Credit card debt is the norm for a majority of Americans. But you already knew that, didn’t you?

Credit card redlining is a spatially discriminatory practice among credit card issuers, of providing different amounts of credit to different areas, based on their ethnic-minority composition, rather than on economic criteria, such as the potential profitability of operating in those areas. This banking system consistently deprives lower-income and minority communities of the assets they want to make up investments and property. These companies that are offered come increasingly from shadowy and price-gouging check-cashing transactions and payday lenders. Meanwhile, this super-aggressive selling of credit cards to middle-income people has led some to break deeply into debt, and forced to give off large accumulated loans in usurious interest rates. Scholars assess certain policies, such as credit card issuers reducing credit lines of individuals with a record of purchases at retailers frequented by so-called ‘high-risk’ customers, to be akin to redlining.

At the decades, sociologist John McKnight coined the term ‘redlining’ to identify this discriminatory practice of fencing off communities where banks could prevent investments based on their demographics. During the period of redlining, those places most often discriminated against were black inner city neighborhoods. Redlining comes under the broader category of payment rationing. A new report by the Center for Investigative Reporting’s Reveal platform shows that modern-day redlining persists in 61 metro areas in the form of racial discrimination in the mortgage process, even after controlling for mortgage applicants’ income, loan amount and neighborhood. The modern form of redlining exposed by this research reveals overt discrimination against individuals of color, while historical redlining labeled whole neighborhoods, often with race as a reason.

Debt, particularly credit card-related loans, continues to plague most Americans, threatening to decrease their payment ratings. Approval ratings, often known as FICO numbers, are broken down into five components. Cost past makes up 35% of the total number, amounts owed makes up 30%, duration of Payment history determines 15%, Payment mix averages 10% , and new credit makes up the remaining 10 percent of the score. If you’re an average student, you are not the average American, and your credit score is likely zero.

When seeking the credit loan method, you’ll have a great number of choices to choose from. From credit settlement firms to the private liability consolidation loan and bankruptcy, there are some schemes for giving off debt. Some require getting on current loans to give off old loans while others need you to spend on business services to use the loan relief method. In American Consumer credit counseling (ACCC) , we offer free payment counseling to encourage people but like you select the most powerful payment debt method for their business condition.

For example, let’s assume that you have $10,000 of credit card debt at a 15% interest rate. If you can consolidate your credit card debt with a personal loan at a 7% interest rate and 3-year repayment term, you will save $2,634 and pay off your credit card debt earlier.

If you take the deal of payment paper loan, which 20 percent of LGBTQ respondents to Experian’s LGBTQ currency study told cost their largest fiscal worry, this loan Lasso Method to pay off your credit card debt, as it’s customized for only paying off credit card debt, maybe a better solution than either the Avalanche or Snowball Methods. Loan consolidation corporations provide solutions to add multiple debts–such as payment card bills, family loans, or else loans–into one easy-to-manage monthly payment. The debt relief method may be useful for consumers with some great loans, particularly if they have loans with higher interest rates.

There seems to be only one obvious solution, which is to help people manage or eliminate their debt. There are two alternatives, for-profit debt settlement service providers and not-for-profit credit counselors of which the NFCC, founded in 1951, is the nation’s first and largest dedicated to improving people’s financial well-being. [5] Simply put, credit-card debt is not sexy. NerdWallet found that 70% of Americans think there is a nasty stigma surrounding it, vs. other kinds of “good” debt like a home mortgage or student loans.

A recent study [6] conducted by the Federal Reserve Bank of Boston and cited by Bloomberg Business  paints the picture. About 35% of Americans ages 25 to 50 pay off their credit card debt every month, but most of credit card debt resides with people called “revolvers,” or Americans who pay interest on their debt from carrying a monthly balance, reports Bloomberg. As of December, consumers owed a total of $936 billion [10] in credit card and other debt, including that from auto and student loans. Credit card debt may not be your only debt, but it is undoubtedly your most costly debt. However, when you’re also worrying about paying off student loans, a mortgage, and a car loan, it isn’t necessarily apparent that the credit card debt should be handled first. Nonetheless, credit card debt carries a much higher interest rate than the other debts, and the longer you leave your credit card debt untouched, the longer that interest accrues. Student loan interest rates typically run between 5% and 10%, in comparison to credit card interest rates which commonly hover between 13% and 20%.

My generation is simultaneously numb to and terrified by the state of our student loan debt; of coure we are–student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans. However, in our haste to escape poverty and pay off those debts, there is an easy trap to fall into – credit cards. Beyond the forced stress of being a student, our predispositions also make us more vulnerable to preying credit cards. Student debt Hero discovered, “60 percent of LGBTQ people with student loan debt likewise have different cases of loans, and 79 percent of those with different cases of debt specifically have credit card debt.”

When the country wants you to be poor based on your skin color, sexual orientation, ability, or status, then it feels inevitable that you will have to take out credit to keep up. Although the sheer size of student loans makes them seem like the primary target we should be working to expunge, it turns out that this debt is largely stagnant. Debt from credit, though, is malicious; unlike other forms of debt, credit will quickly grow in size whether you yourself are adding to the pile or not. It is crucial we be mindful of this trap and do our best to steer clear, or at the very least know that, in the face of so many debts, credit is the most important to expunge.

References

1. John Schneider and David Auten. (Jul. 2018). 4 Easy Steps To Repair Your Credit Score. Forbes. Retrieved from https://www.forbes.com/sites/debtfreeguys/2018/07/08/4-easy-steps-to-repair-your-credit-score/
2. Friedman, Z. (May. 2018). 5 Ways To Pay Off Credit Card Debt Faster. Forbes. Retrieved from https://www.forbes.com/sites/zackfriedman/2018/05/21/pay-off-credit-card-debt-faster/
3. Zaleski, A. (Feb. 2016). Credit Card Debt Usually Begins Early for Americans. Fortune. Retrieved from http://fortune.com/2016/02/09/credit-card-debt-usually-begins-early-for-americans/
4. Levick, R. (Oct. 2017). Credit Card Delinquencies Are Rising Fast — And There’s Only One Sustainable Solution. Forbes. Retrieved from https://www.forbes.com/sites/richardlevick/2017/10/30/credit-card-delinquencies-are-rising-fast-and-theres-only-one-sustainable-solution/
5. http://www.bostonfed.org/economic/wp/wp2015/wp1517.htm
6. http://www.bloomberg.com/news/articles/2016-02-09/americans-can-t-help-themselves-from-borrowing-more-on-credit-cards
7. http://www.bloomberg.com/news/articles/2016-02-09/americans-can-t-help-themselves-from-borrowing-more-on-credit-cards
8. http://www.bloomberg.com/news/articles/2016-02-09/americans-can-t-help-themselves-from-borrowing-more-on-credit-cards
9. http://www.bloomberg.com/news/articles/2016-02-09/americans-can-t-help-themselves-from-borrowing-more-on-credit-cards
10.  Zaleski, A. (Feb. 2016). Credit Card Debt Usually Begins Early for Americans. Fortune. Retrieved from http://fortune.com/2016/02/09/credit-card-debt-usually-begins-early-for-americans/
11. Cohen-Cole, Ethan (2009). ‘Credit Card Redlining’. SSRN Electronic Journal. doi:10.2139/ssrn.1098403.