How credit cards cornered well-educated businessman

Your Money

July 16, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

Credit-card users face a wall of worry in 2006 over rising interest rates, higher minimum payment requirements and bankruptcy laws that make it tougher to write off unsecured debts.

You can write your own sad story of being swept along by economic events beyond your control, or you can take firm control of your credit.

Here's the true tale in progress of an acquaintance of mine who owns a small business:

Under pressure to pay mounting bills at work, he opened as many new credit cards as he possibly could to expand his purchasing power. He charged each to the limit. With his good payment record, issuers extended more credit despite his high debt load.

He then made charges to his company using personal credit cards for cash to meet payroll and bills. Soon he no longer had enough money to pay monthly minimums.

A nightmare began, with card companies calling to seek payment, in some cases every day. The firms imposed late fees and over-the-limit fees, and placed higher interest rates on his card debt because of his increasingly poor payment record.

Hoping for a business turnaround, he ignored the phone calls and notices from issuers and collection agencies. When some money did trickle in at work, he made modest partial payments.

Some creditors set up easy payment plans, while others refused and kept piling up the fees and interest on his accounts month by month. Eventually, however, his business improved and he buckled down to pay off all of his debt, prudently limiting himself to two credit cards.

I wish I could say that's the happy ending. But he recently found himself in a financial jam again and applied for another two credit cards to bail himself out. This time, both issuers denied him credit, a sign that they're paying closer attention to finding more reliable customers.

This well-educated, professionally respected fellow isn't a nut case and previously paid all his bills in full. Owning a business added to his pressures, but his slippery slope is no different from that of the average American who lets a good credit rating turn bad.

Just as a riverboat gambler continues to play poker, he may continue to play credit cards and in the end lose big or go bankrupt. It's not enough to know better. You actually must do better, especially when interest rates are not the consumer's friend.

Andrew Leckey writes for Tribune Media Services.

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