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Are you a credit card slave? Part 4

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In this series, I’m looking at our changing attitudes to money, and answer the simple question: are we all credit card slaves now? Part 1 was entitled Where did our attitudes to money come from?. Part 2 is Credit Cards, Bank Accounts and Salaries. Part 3 was The Credit Card Cascade and the Madness of Spending. This is the fourth installment in this week’s series.

What is a credit card slave?

In Taiwan, a few years ago, many banks started promoting a new form of credit loan that was a cross between a credit card and a traditional bank loan. After being approved, consumers were issued with ATM cards that could be used to withdraw cash at machines around the world; of course, the ATMs attracted fees, and the interest rates were high. Slowly, the banks pitches become more and more aggressive and the advertisements more and more outrageous. One bank called in Chinese ‘Wan Tai Bank’ or Cosmos Bank ran such a successful ad campaign that they become almost a household name in Taiwan. The cards were called George and Mary…

g&m

But many borrowers were unable to pay back the loans they had made, and the interest rates (now regulated) stood at more than 18% apr. Prior to regulation, rates had been much higher, and newspapers reported many stories of individuals and families killing themselves and their offspring as a result of their debts. There are quite a few stories in the Taipei Times about this issue:

In fact, an article last year cited over 3,000,000 credit card slaves (about 1 in 8 of the population!), and more than 400,000 Taiwanese have been declared bankrupt because they are unable to clear their credit card debts. (cited: The Asian Pacific Post Newspaper)

Slavery is defined by Wikipedia as: “Slavery is a social-economic system under which certain persons — known as slaves — are deprived of personal freedom and compelled to perform labour or services. “

While the definition is rather narrower than would warrant, it is possible to characterize credit card debt as a form of slavery, simply because the high interest rates deprive customers of their personal freedom as they struggle to pay off their debts.

To some ‘credit card slaves’, it seems they are indentured to the financing companies, and some financing companies don’t hesitate to employ less than orthodox means to ensure repayment. However, to suggest that credit card debt is a form of slavery is to underestimate one important factor: it is the borrower who incurred this debt, in the first place. The compounding factor of course is the high level of interest and penalties that are imposed subsequently on the borrower.

While this may depress many creditors who stare at the pile of mounting debts, this thought should encourage because if it’s something that was done by you, then it can be fixed, too, no matter the scale of the challenge.

September Credit Card Spending: Why no cashback spending?

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As credit cards become much more prevalent than before, we are finding that there are ways to use credit cards that were not possible just one or two years ago: travelling on the subway in Taipei, buying a cup of coffee (yes, I did that!), paying for doctor’s fees, paying regular bills, fees or memberships, and so on. Some of the ways get quite ridiculous, so it’s getting much harder to resist the swipe and forget reaction of credit card users!

Of course, online it’s possible to spend a lot of money using your credit card. You don’t have to worry about it till MUCH later. Seems ironic that we are actually using our own personal credit cards MUCH LESS than before, even though it’s easier to find ways to use them.

The September Credit Card statement arrived this week, and I have just paid it! So, you’re asking what was on it? Actually, the total this month was only half of last month’s, or NT$6300, a little over US$200.

So how did we rack up that NT$6300 in charges? Well, there was the usual $2000 insurance charge, a telephone charge for my mobile phone, and I recently purchased an annual subscription to EMusic.com, which cost about $3300. Somehow, though going to several nice restaurants, buying clothes, gasoline, books, and other knick-knacks, we managed to avoid swiping for almost all of these things in September.

If you’re really shrewd, though, it is possible to earn quite a bit of interest, or at least reduce your interest payments through balance transfers and through cash back credit cards which credit money to your account everytime you spend.

It seems dumb for me not to charge things to credit cards, when some cards are begging payments to be made through them, and offer 3% or 4% cashback. Now that would be a nice payment of nearly $189 or more on the money I spent! It’s getting harder to argue against using a credit card in those cases.

Minimum Repayments: That’s EXACTLY how much? How long?

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Once a month my credit card statement drops on the mat, and I get a chance to peruse my spending that previous month. Actually, this month’s spending was quite minimal and mostly anticipated.

(All Currencies: NTD).

First, we had a nice meal at the beginning of our annual break. That came in at $1518 for two, including a buffet, a nicely prepared main course, and 10% service charge. The restaurant is called Dante’s and is located inside the campus of Taipei National University of the Arts! They serve Italian, French and American style cooking with fresh local and imported ingredients. On Saturdays, they are SUPER busy, and the staff need a bit of politeness training… but we go for the food anyway! We’ll go there if you visit me in Tamsui!

Second item on the list was an odd one: a 2-year domain purchase of my business site in Chinese. This was provided by UnicodeDN and cost me the grand sum of $1314. I’m now thinking of adding another with another variation of our company name.

Third is our regular payment: a combined life insurance and investment product from Cigna. I counselled my wife NOT to buy this, but she didn’t buy it for the obvious reasons. She felt that she was helping her sister go through a rough patch! And indeed her sister has done fabulously and gone on to become a local financial adviser, having passed some tough exams (and that’s one thing Taiwanese are good at: setting exams!). We are definitely not making a lot of money out of this one, as in general, such products don’t offer good value: there are just too many ways to take commissions, including a standard commission, unit transfer fees, I’m sure there’s a currency commission, and, most certainly, there is a credit card fee, of course! In fact, once you consider all of this, I’m surprised that we don’t OWE Cigna money for this product.

Fourth and Fifth payments are for two nights in different hotels while we had a three-day trip to some of the mountains around Lala Mountain in Taoyuen County. I’ve included a You-Tube video for you to get some idea what the area is like. Though the first night we stayed at a hotel near the Yi-lan, in a tourist zone area. Quite pleasant on the East Coast overall, I have to say. Then we drove up to the LaLa Mountain area where we stayed at another hotel called MingChih National Forestry Resort. Neither of these was particularly cheap. But getting a chance to stay there was wonderful, and we were lucky to get a vacancy on the spot. We had a little cabin with NO airconditioning… it was VERY cool outside, in fact about 21C, compared to down on the plains where the temperature and humidity were much higher. Total cost: $6170 for both nights.

There were no penalties or interest charges to pay off this month, either. That left us with the grand total of $11,002 to pay on our credit card, or we could pay the minimum balance of $1100. We also earned 551 bonus points to add to our total. Naturally, we paid it off entirely. A quick look at the calculator below showed us why: we saved about $606 doing this, and it would have been paid off in a year exactly.

repay

How was your August Credit Card spending? Did you spend wisely or blow your budget? Did you pay it off at once or slowly? Use the calculator to find out how much you would spend. Don’t worry, you can simply ignore the British Pound sign and assume dollars or euros.