I personally fell into this trap a few years ago, and thankfully have since paid off the debt. But this all came at a price. In my case it cost me over $3,000. in total interest payments. You think that after having worked at a bank during my younger University years I would have been able to avoid such a thing – think again!
When you are a Financial Services Rep, you basically are a credit salesman. But the banks wouldn’t dare hand out such a title to their workers due to the negative connotations associated with sales. They want their public image to be all about trust and customer service. The banks most definitely aren’t set up to honestly be there for the customers at the end of the day. They are in business for one reason, and that is profits.
As a Financial Services Rep you are rewarded according to how much new credit you bring in quarterly, and are given aggressive targets to meet. You meet these targets by signing people up for more accounts, newer and bigger credit cards, line of credits, personal loans, etc. From the get go, as soon as you walk in to the bank and are greeted by a teller they are primed to upsell clients on “special offers” or to transfer clients to another rep in hopes of setting them up with credit products or investments. If they can’t get you in branch they will try and grab you through offers in your online banking, or the good old fashioned pre-approved credit card offers int he mail. Not once did I hear a staff member being rewarded for spending their week sleuthing through clients portfolios in hopes of saving them money or minimizing their fees. Sure you could provide the customer insights into where they could save money on credit products, but it was rarely done proactively.
In comparison to the average consumer, I would be considered to be well informed people on the dangers of the nasty interest traps that credit products can get you in. But, just like millions of other people, I fell on hard times for a couple years and had to rely on credit far more often than I would have liked to. If you are to look at the average household credit card debt statistics you will be saddened to see that they are now over $16,000. I think my credit debt at the worst of times reached somewhere $12,000, and even then the stress associated with even that number made me lose sleep.
The bottom line is that the math behind getting out of credit card debt is horrifying. Say for instance you currently have a $10,000.00 credit card balance. Let’s also assume that the most you could afford to pay towards that debt was $300. Assuming you decided to cut that card up and won’t be making any other purchases on it, you will be out of debt in 48 months. At the end of those four grueling years you will not only have paid off that $10,000.00 but you will have also had to pay more than $4000 in interest. You can easily see how silly things can get if you lower the monthly payment and just make minimum payments, let alone carry a higher balance. Let’s not kid ourselves either here folks. Most people who carry balances aren’t usually in a position to simply cut their spending cold turkey. Ergo their balances will be pushed well north of $10,000 starting point. It might not jump up drastically right away, but you can guarantee after a few months if things don’t change on the income side of things your financial situation will only look darker and darker.
This video, although based in humour, outlines exactly how consumers get caught up in the credit card chokehold of death. Can you relate?