Tuesday, April 21, 2009

Kicking the Credit Card Habit

My name is John and I'm a recovering credit-aholic.

When I was younger (read: without children and less concerned about money) I had a habit of buying things with a credit card. It was not the smartest thing I ever did, and one day I found myself wondering just how I had managed to build such a huge amount of debt. So several years ago, my wife and I began the process of weaning ourselves off credit cards. We have managed to reduce our credit card debt to very reasonable levels today (though we still have balances) and we did it without taking out home equity loans to do so. We just worked harder at not buying stuff we didn't need and began to purchase only what we could pay for with cash. If the cash was not available, the item was not purchased. It seems we changed our ways just in time.

Last week I was sent a letter from Bank of America. They own one of the 2 credit card accounts I have. They wrote to notify me of a pending rate change – a big one. After more than 15 years, first with MBNA and later with Bank of America (BoA) following a buyout, I would have thought that perhaps someone there appreciated my business. But apparently not.

It seems BoA does not care that my outstanding balance is less than 25% of my available credit line. It would appear that my predictable and reliable monthly payments (on which I am never late) also don't matter to them. They have decided that effective May 2, 2009 my rate should be more than doubled from 8% to 19%. That seems a bit excessive to me for an account in good standing that is being paid without issue.

According to the notice, I had the option to refuse the increase in writing, which I did (and not in a nice way I may add). But refusing the increase means that any charge to the account from that moment on results in the higher rate being applied to current and future balances. Thus, the card came out of my wallet and I began to track down any automatic charges from places like Maine's Turnpike Authority that resupplies my EZPass account with the card. Luckily, this process was short and I was able to turn the automatic payment options off.

My balance is small enough that I can pay it off in a few months, which will be my focus from today forward. I will then cancel the account and never do business with BoA again.

I am left by the experience feeling more than angry. First of all, BoA received TARP funds in a tax-payer funded bailout for their losses. Now, they are coming after more of my money via a massive rate hike. There just never seems to be an end to their need for cash. Therefore, I can only deduce that they are in even more trouble than we have been led to believe. If BoA is in enough trouble that they are willing to sacrifice the future for today – because I am sure I will not be the only account holder they will lose as a result of this tremendous increase – then they must be looking at the very real possibility of not being around in a few years.

But they are not alone in their fear. The government is also very concerned that the financial industry is falling down around us, and will do almost anything to boost confidence in the banks. The recent “stress tests” the government conducted on the biggest banks in the country (BoA included) was mostly smoke and mirrors (see Nouriel Roubini's blogpost from April 13, 2009) and thus should not be relied upon for any accurate picture of the banks' stability.

But it's not just big banks that are in trouble. All financial companies are facing huge defaults on auto loans, mortgages and credit cards. No one appears to be immune in today's environment.

I have only one other credit card and that is through Discover. While I have been writing this post, I received a notice from them as well (ironic, no?) that also advised me of a rate hike on that account. While that one is not as steep (from 7% to 13%) I don't have a balance there to worry about. But that makes the next step that much easier. The letter canceling the account will be what I type as soon as I am finished here.

Like any addict in recovery, I have learned to live without my abused substance. Now, I will just take the final step and remove what I had considered to be an insurance policy from my wallet. It's long past time to operate strictly on a cash only basis.


  1. Johnny
    Any reason theyr'e singling you out?
    Sounds like the Pusher Man is done fronting your financial Crack.

  2. Or they're raising rates while they still can.

    Obama met with a bunch of credit card company CEO's today and told them he supported legislation that will reduce and curtail their ability to raise rates without a reason.

    Fed regs supporting the same are due to take place in July 2010. My guess is they need the money now and they can still do so with impunity.