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American Morning

Finance Columnist on Credit Card Debt

Aired April 10, 2002 - 08:25   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Our big question at this hour: Is it dangerous, is it wise to pay your rent with plastic? Last year, Americans charged $1.5 trillion, Virginia, with a "T," trillion dollars on credit cards, three times more than was spent on credit cards 10 years ago. At the same time, the unpaid balances on those cards more than doubled. So spending tripled, unpaid balances doubled.

Credit card perks such as airline miles are one way of luring consumers to use them, and now the country's largest property manager is teaming with Visa to allow tenants to pay their rent with plastic.

Joining us from Chicago to talk more about this idea is Terry Savage, the personal finance columnist with the "Chicago Sun-Times" -- Terri, nice to see you -- thanks for being with us.

TERRY SAVAGE, "CHICAGO SUN-TIMES": Good to be with you, Jack.

CAFFERTY: So shall I whip out the credit card and pay the rent with it? This obviously has to have some appeal someplace, or they wouldn't be doing it. But is it a good idea?

SAVAGE: Oh, sure. Well, you know, it has a lot of appeal. First of all, people who pay their bills on time and pay them in full, their credit card bills, will get airline miles, and that's really attractive. It's convenient. And you know, there is nothing wrong per se with using your credit card.

The danger is, of course, when you start paying only the minimums or you have a debt overload. Then all of a sudden, you are facing interest charges, which build up. And you know last year, Americans filed for bankruptcy in record numbers, and a lot of it, not all of it, is because they don't know how to manage their credit cards so easy. So that's what the real danger is, I think.

CAFFERTY: Well, that's true that people don't know how to manage their credit cards, but are the credit card companies at all culpable in this massive amount of debt that the nation has accumulated?

SAVAGE: Well, you know, a lot of it is self-discipline. It's like -- you know, I think the danger of putting your rent on your credit card is like inviting a bunch of girlfriends over who are dieting, and then serving chocolate cake.

CAFFERTY: Right.

SAVAGE: I mean, you just put that temptation out there. Americans have, as you pointed out, $683 billion in debt, and then this study came out showing that 47 percent of those people -- that's the amount revolving every month -- 47 percent of those people only pay the minimums. Now, think about this. The way most minimums are calculated, it could take you as long as 30 years plus four times whatever you charged to pay it off.

CAFFERTY: Right.

SAVAGE: But 30 years, you'd think if you were paying on how you live for 30 years, you'd like to wind up with a house that you own and a paid-off mortgage and equity that's increasing in value in a house.

CAFFERTY: Sure.

SAVAGE: So a lot of people who rent, certainly not all of them, are people who haven't been able to save up for a down payment.

CAFFERTY: What about...

SAVAGE: And this will just put them further in debt if they can't pay in full every month.

CAFFERTY: What about the morality of these ridiculous interest rates that the credit card companies charge consumers? I mean, if you go out and get a mortgage, it's 7 percent. If you buy a car, it's 6 percent. If you run a bill on your Visa card, it's 16 percent.

SAVAGE: Let's say that again, because it's a choice people make, and it's a really dangerous choice. As I said, it's a temptation. It's like walking by the candy counter. It's like serving alcohol when you have people who really can't drink. They are alcoholics. But I think we haven't taught people enough how dangerous it is, and I am glad we are doing this segment. It is just burying yourself in debt, and...

CAFFERTY: Should the government take a role in saying, wait a minute, these are usurious rates, you can't charge this much, you can charge 9 percent, you can charge X over the prime rate, but you can't charge 17 percent or 18 percent?

SAVAGE: You know, Jack, I bet your credit card, if you ever have to carry a balance month to month, carries a much lower charge. But the fact is that people who can't afford credit and don't know how to use it wisely are paying 16, 17, 18 percent. You don't want to get the government involved. When they limit the price of credit, they restrict credit to people. Now, if you want the government making that decision, and maybe some people do, you are not allowed to have credit, you can't buy that refrigerator when your refrigerator breaks down.

CAFFERTY: We've got 20, 30 seconds...

(CROSSTALK) CAFFERTY: We've got 20, 30 seconds left. Give me two quick alternatives to using credit cards.

SAVAGE: OK. All right. A quick alternative, use your Visa debit card. You won't get miles, but you will pay it off. You can't charge if you don't have money in it.

CAFFERTY: OK.

SAVAGE: Or set up online bill pay, and you can automatically debit. And pay double the credit card balance you do have. That ought to pay it off in three years. If you are already in debt, double your monthly payment, the minimum, and don't charge another penny, and you will be out of debt in less than three years. Use some understanding of the laws of big numbers.

CAFFERTY: Right. There you go.

SAVAGE: It's working against you when you charge it.

CAFFERTY: I appreciate the wisdom that you have brought to proceedings here on AMERICAN MORNING, Terry -- thanks.

SAVAGE: Thanks, Jack.

CAFFERTY: Terry Savage, financial columnist for the "Chicago Sun-Times" newspaper.

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