Credit Cards​—A “Plastic Trap”?

CREDIT CARDS! Do you have one? If not, and if you are in a developed country, it may be just a matter of time before you receive an offer of one. Banks, department stores, oil companies, and the like, are saturating the world with these little rectangular plastic cards, and you may be reached sooner or later. Possessing one, however, can prove to be a blessing or a curse. Which will it be for you?

Increasing numbers of cardholders today end up experiencing serious financial difficulties. Why? Because of the unwise use of credit cards. Caught up in the fervor of “cash-free spending,” they have fallen into what some have referred to as the “plastic trap.” For them, credit cards are a curse. They may feel as did one person who suggested that the following be put on each card: “WARNING: Credit cards may prove hazardous to your wealth!”

Yet, there are many who have no complaints. For them, the availability of credit cards has proved to be a blessing. Some of the more popular advantages cardholders enjoy include: no need to carry much cash when shopping; being able to take advantage of unexpected price reductions on needed merchandise; the flexibility that credit affords by buying now and paying later; quick access to cash in case of an emergency; and the convenience of making purchases and payments over the telephone.

Although “plastic money” may cause some anguish when not used wisely, if properly utilized, it can provide the opportunity to enjoy privileges that may not otherwise be obtained quickly. In view of this, you may ask, ‘How is it that it can become a trap?’

“I Really Don’t Need It, But . . . ”

Propaganda and peer pressure have lured many into using credit cards. Banks are spending millions on advertising promotions in an effort to entice more people into their “plastic paradise.” Even children have been targeted by such promotional schemes. Applications have been accepted from eight-, seven-, and even six-year-olds!

For the most part, advertisements are designed to attract prominence-oriented persons who have been led to believe that the mere possession of a credit card will ensure them instant recognition and importance. Some feel that a credit card is a sort of diploma that certifies their financial success and prestige. The magazine Changing Times recently stated: “TV commercials portray how carrying the proper card can help you win friends, influence people and, well, make you feel warm all over.”

Some credit-card holders have admitted feeling a sense of well-being coming over them, a “whoosh of power” and a boost of self-image when using the card. Many give in to the enticements without really needing the card, and often this is followed by spending more than they can afford.

After studying the behavior of credit-card holders, a psychologist made the following general observation: “People who use credit cards don’t keep track of their expenditures at the time.” It has been observed that many, after acquiring a card, suddenly become insensitive to prices and turn into impulsive spenders. One person stated that after disposing of his credit cards, he was for the first time in a long while actually noticing the prices of things.

Hidden Costs

Banks are “putting plastic credit cards into the hands of people who really can’t afford them and who don’t understand the intricacies of debt,” noted a recent newspaper article. Using credit cards, without understanding how credit works, has resulted in financial disaster for many.

For example, one newspaper reported that a woman obtained a loan of $3,000 with her credit card. After her first three payments totaling $220, she still owed $2,956. Over a period of seven months, she had paid $584, which reduced her debt by only $157.19. Where did the rest of the money go? To pay interest! Until recently, some banks charged up to nearly 22-percent interest. As a result, cardholders’ indebtedness has reached a historic high.

Additionally, most banks charge an annual fee for each credit card they issue. In the United States the fee may be anywhere from $15 to $250. Other banks charge a certain amount each time the card is used. These hidden costs have earned credit cards a worldwide reputation of being “expensive plastic.”

“I Didn’t Buy That!”

If you are a credit-card holder, you may get a bill for something you did not buy. It may be due to a billing error made by either the bank or the business where you used the card. However, in addition to such occasional billing errors, every cardholder runs the risk of becoming victimized by fraud.

The fraudulent use of your credit card simply requires access to your name, your account number, and the expiration date of your card. Stolen or lost cards, as well as the carbon copies of your transaction slips, can supply a thief with this valuable information. Some cardholders have received a phone call from an unknown company informing them that they have won a prize. Then, through some elaborate explanation, the caller tries to con the person into giving him the necessary credit-card information for his fraudulent use.

Much has been done to make fraud more difficult. Cards once were just plain pieces of plastic with numbers on them. Eventually, encoded information on a magnetic strip was added. Now holograms and more complicated printing patterns are being used. In some areas experiments are under way with the so-called smart card containing a microcomputer.

While these steps will make fraud increasingly difficult, The New York Times added: “Thousands of fakes abound. And most thieves are guaranteed at least a few hours’ shopping spree before transactions on a stolen card are halted.” A recent report indicated that during 1985 more than $700,000,000 was lost to credit-card fraud in the United States.

In the final analysis, who pays the price? While it would appear that banks do, Parents magazine supplies a more realistic answer. It observes that banks “keep the interest rates charged on . . . cards artificially high to cover losses incurred through their misuse.” Additionally, when banks “are paying 7 or 8 percent to borrow money and charge the credit-card holder 16, 18, or even 20 percent, the huge difference allows them to absorb the cost of a great deal of credit-card fraud.” Yes, in the final analysis, every cardholder is paying the price.

How to Avoid the Trap

You can avoid falling into the trap. How? First, determine whether you really need a credit card or not. Analyze your motives for wanting a credit card before you apply for one. Make a sensible decision rather than being enticed by propaganda.

If you do decide to have credit cards, use them wisely. Handle your credit cards as a business. Become acquainted with the procedures to follow when reporting a billing error or when you suspect fraud. Check local laws that protect you. Carefully check your monthly bills. The computer-generated bills you get from the credit-card company are not infallible.

You may also want to avoid keeping a debit balance in your credit-card account. Many pay for their purchases in full before the computing of interest begins. If you do need some time to pay your debt, then pay it as soon as possible.

Yes, be a thinking consumer, and you may never fall into the plastic trap!

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Ways to Avoid Credit-Card Fraud

◼ Guard your cards carefully, as you would cash. Never leave them unattended.

◼ Examine your statements and reconcile your account every month. Report any questionable charges.

◼ Never give your card number over the phone unless you are dealing with a reputable company.

◼ After handing your card to clerks or waiters, make sure it is your card they return to you. They could unintentionally switch cards.

◼ Ask for your carbons and destroy them. Also, guard your copy of the transaction slip.

◼ Destroy expired or otherwise unwanted cards.

◼ Keep a complete record of credit-card account numbers in a safe place.

◼ Report lost or stolen cards immediately.