credit cards | Financial Crooks

I tend to think of credit and debt problems as a modern invention brought about largely by credit cards. It took a trip down a coal mine in Cape Breton to remind me that misuse of credit leading to soul-destroying debt is actually a very old problem.

Learning About Credit from a Man of the Deeps

For those of you who have watched a Rita MacNeil Christmas Special on CBC, this explanation will be unnecessary. But for the iPod generation, I will explain the Men of the Deeps is a group of male singers who all worked previously in the coal mines in Cape Breton.

I’m not sure whether the retired miner who led our tour of a coal mine in Glace Bay has ever sung or not but he definitely did work in the Deeps. He was the son of a miner and the grandson of two miners, one of whom died when the coal face he was cutting collapsed onto him. So when he spoke of the old days of mining he drew on personal experience.

Can’t Afford It? Don’t Worry You Can Buy It On Credit!

Our guide explained how the mining companies got and kept the men who would do this dirty dangerous life-threatening work. The trick was the way the company offered and used (or mis-used) credit.

Many of the first miners were lured here by golden-tongued tales in Britain and Europe of the guarantee of work and a house to live in. If the recruits didn’t have money for the fare on a steamship, the company would even loan them the $50—if they signed a work contract and agreed to re-pay the money over time.

Once here, the new workers found themselves in isolated communities where everything belonged to the mining company. All of the houses, the heating fuel, the water, and if there was any, the electricity, was provided, for a price, by the owners of the mine.

There was a store, too, with everything you could imagine for sale from simple food and clothes to luxurious high-priced items like cameras and porcelain dolls. Guess who owned the store? the only store?

Indebted Forever

The mining companies were happy to extend credit to the men who worked for them. That was the catch, though. They only allowed loans to those they employed. So if you wanted to quit, you had to pay all you owed, immediately, to the company. Most men couldn’t afford to do that. So they were stuck working in the mines, even if they feared and hated it.

Our guide also said that he believed that the mining companies gave the worst most dangerous jobs on the shift to those with the highest debts: those were the men who literally couldn’t afford to object or quit.

It’s Hard to Say “No” to Free Stuff

The company stores made it very easy to get into debt. Imagine the weeks leading up to a major holiday like Christmas or a special occasion like a birthday. Hopeful children and adults would look at the expensive, enticing items on offer at the store: leather ice skates with attached blades, Kodak Brownie cameras, phonographs, sewing machines, porcelain head dolls with fancy clothes.

It would have been easy for the miners to say “No” to these attractive goods if they had had to hand over a carefully saved wad of cash. But they didn’t have to spend a cent. The company would let them have the present of their child’s dreams and just put it on their bill.
And so they would end up farther in debt. Misuse of credit can be crippling.

Unions and Development Saved the Miners from the Credit Debt Death Spiral

Eventually through the work of the unions to improve working conditions in the mines, pay, and living conditions above ground, miners broke free of the credit/debt cycle. When they could build a home of their own, shop from non-company-owned stores like Eaton’s, and fuel their home with firewood, the miners could start to earn more than enough to service their debts.

What Will Save Us from Credit Card Debt?

Does this mean someday we will find a solution to the lure of credit card debt? Higher wages alone won’t solve that problem as the credit card issuers will just offer higher credit limits to encourage more over-spending. It’s unlikely that governments will intervene to impose limits on the amount of credit a consumer can have.

Perhaps the solution will develop when enough people demand changes to the credit issuing and usage system to prevent misuse of credit. I don’t really know.

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Do you think modern-day credit card debt holders are significantly different from those miners trapped in a cycle of credit, debt and work? Please share your opinions with a comment.

Like Guns, in the Hands of the Untrained and Impulsive, Credit Cards are Dangerous

Some friends of ours are poster children for how to use a credit card properly. They only buy things if they already have the money in the bank waiting to pay for them. They read their statement carefully looking for fraud and errors. They pay off their balance in full each month. They even take advantage of a few discounts by using a card (gasoline) and get a few points once in a while (Air Miles.) I’m quite sure VISA hates them.

But credit cards can be very dangerous in the wrong hands. If a person lacks self control, even once, they can end up buying something they can’t pay for when the statement arrives. Then the evil interest starts accumulating. The interest rates on credit cards are outrageous. At a time when you are lucky to get 1.5% on your cash investments, credit cards are charging 5-20% interest! It’s easy for a purchase to end up costing twice what it cost when it was rung up at the till.

Credit cards are also dangerous in a more subtle way. Apparently people are more likely to buy more items and spend more per item if they shop with a credit card than if they shop with cash. There’s no physical, tangible pang of loss when handing over a credit card like there is when handing over a crisp new $20. In fact when using a credit card you often don’t hand over anything: the card never leaves your hand.

Why Do People Want Credit Cards?

There’s quite a variety of reasons people want credit cards:

They want to be like their friends.

They don’t like to carry cash

…because of germs
…because they can’t get to the bank easily
…because it’s bulky
…because it can get lost easily
…because it can get stolen

They need to buy items online and the vendor asks for a credit card.

They want to rent a car and the auto company doesn’t want to rent if they don’t have a credit card.

They want to buy something that requires on-going payments and the service provider wants to bill it to a credit card.

They want to collect reward points or miles.

They want to earn “cash back.”

When Do You Actually NEED a Credit Card?

Of all these wants, there are only a few situations when you actually need a credit card.

buying airline tickets

renting a car

booking a hotel room

paying for work-related expenses where you have to wait to be reimbursed and yet you don’t have the cash to cover the costs until then

I’d argue that in most of those cases you could still work around it through a combination of debit or cash deposits. People who cannot get a credit card manage, although it is probably difficult, embarrassing and time-consuming.

But Do You Need a CREDIT Card or Just a Delayed-Payment Card?

When you mention cards and plastic, you usually think of a credit card like VISA or MasterCard. There is a second type of card, though. The most common brand-name is AMEX, American Express. These cards allow you to delay paying your bill until the end of the billing month. You can’t carry a balance past that same month, however. Payment in full is due when the bill arrives.

These delayed-payment cards, or charge cards, may be the answer for some people who need the convenience of a credit card but who don’t want to risk over-spending.

Pre-Paid Credit Cards

Another option that might work for some people are cards where you load money on the card and you can use it to spend until the money is gone. Personally, I don’t see many advantages for these cards over debit cards. You’d have to check for fees and transaction fees before getting one. If they are like the VISA and MasterCard “gift” cards of a few years ago the fees might be a problem.

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Learning About Mis-Used Credit and Soul Destroying Debt While Down in the Deeps