Don't blame 'credit card game,' blame irresponsible player

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question for the expert

Dear Opening Credits,
I am so tired of this credit card game. I'm angry. It seems that the credit card companies are only out to make money from desperate people, and I am sick of it. Once I pay them all off -- I owe about $49,000 to seven companies -- I am going to cut them all up and never ever get a card again. My question to you is: How will dropping out of the system affect my credit report? How do people survive without credit cards? -- Marcie

Answer for the expert

Dear Marcie,
It seems you entered the "credit card game" with some serious misconceptions about the rules. Banks and other credit issuers are not philanthropic organizations. They are as revenue-driven as any other public or private for-profit organization. Also, they are strictly regulated and must abide by a combination of state and federal laws that protect cardholders from abuses. What those laws (and the credit card companies' own policies) do not protect consumers from, however, is themselves. It's up to the person applying for and holding the cards to use them in a way that doesn't harm their overall finances.

That said, I absolutely support your goal of paying your liabilities off as quickly as possible. You have substantial unsecured debt, and even if the interest rates are on the low side, the finance charges are bound to be huge. How big? Assuming the average interest rate is 12 percent and you repay the $49,000 off in three years, it would cost you $9,591 in finance charges. If you were to somehow pay it all in a year, those charges would plunge to $3,244 -- still hefty, but far better than nearly $10,000. If you have savings, I suggest you use some of it to get a head start.

You alluded to credit card companies preying on distressed folks, and this really disturbs me. The fact is, all credit issuers really do is provide a product and service. Use credit cards well, and charging is virtually free; use them poorly, and you'll wind up owing more than you should and paying a tremendous amount in interest and fees. Credit cards don't exist to bail you out of a crisis. They are payment tools intended for short-term loans. Therefore, I urge you to turn the mirror on yourself for a moment:

  • When you charged, did you have a feasible plan for repaying the balances? If not, why should the credit card companies be to blame for the sum you borrowed?
  • Were you aware that the credit card companies would add finance charges to the revolving balances? It's up to you, the borrower, to understand the terms of the agreement before letting the debt grow.

Being accountable for your own spending habits is of the utmost importance. It can be tempting to make creditors the villains, but it's not going to help you in the long run.

Now, if you want to leave the credit card world, you can certainly do that. Many do. If you are still using the cards, you can start your exit by suspending charging now. You may cut them up, or you may make it official and send letters to all your creditors saying you want to close the accounts permanently. After that, don't apply for more.

What will this do to your credit report? Well, not charging anymore and concentrating on debt deletion will probably improve it. Keep in mind that if you close all the accounts, your credit score may be negatively affected because length of credit history and accounts in use are scoring factors. They're not as important as payment history and the balances you're carrying as compared to your credit limit -- known as the utilization ratio -- but it is still assessed. You may still be building a score, though, if you have an installment loan for a home or vehicle or are paying back student loans or a personal bank loan.

Finally, in response to your question about how people survive without credit: Millions do just fine using cash and debit cards only. Plastic is not mandatory. Reclaim your power, Marcie. You have two choices -- learn to use credit cards to your advantage or don't use them at all. It's that simple.

See related: Obama signs credit card reforms into law

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Updated: 12-18-2018