Paycheck to paycheck and credit cards / by kevin murray

As part of its mission the Federal Reserve Board asks questions of American consumers, in which, as reported by, in answer to the " how they would pay for a $400 emergency…47 percent of respondents said that either they would cover the expense by borrowing or selling something."  That response, indicates quite clearly that nearly half of all Americans, are living paycheck to paycheck, in which, they do not even have an extra $400 saved up in order to tide them through any of the inevitable emergencies that people do have.


Not too surprisingly, over the last few decades, the percentage of Americans that use credit cards in order to make ends meet has never been higher, with credit cards essentially serving as short-term loans to many consumers, though the fundamental problem for many of those that are living paycheck to paycheck, isn't that their credit card usage is just for an emergency or just for a temporary short term loan but in actuality is necessary in order for them to keep on top of their bills that they are responsible for and are accumulating on a monthly basis, so that, while initially a credit card may well provide a monetary boost for those that are struggling paycheck to paycheck, such a credit card, soon changes to something more like a noose and therefore becomes a burden.


The problem that consumers have that rely on their credit cards is that, by virtue of not being able to either pay off their credit card bills in full, or by virtue of not adhering to all of the terms and conditions of said credit card, such as its on-time payment requirement, meeting the minimum payment, not going over their credit card limit, or being socked with upfront fees, setup fees, annual fees, or a monthly servicing fee, along with deceptive interest rates that may initially be low or reasonable, in which these interest rates are subsequently either phased out after a finite amount of time, or changed to a higher rate by being in violation of one of the many terms and conditions of these credit cards, is that consumers pay and pay for the credit so issued to them.


What is somewhat surprising to many people is that credit card issuers are permitted to charge whatever interest rate that they so desire as long as it is clearly disclosed in their terms and conditions and abides by the Truth in Lending Act.  This means that when a credit card was issued with an annual percentage rate of 79.9% that this was legal, which is why so many credit cards are issued with double-digit interest rates, even though the cost of money to the banks that are issuing these credit cards has never been historically cheaper than what it has been over the last decade.


Obviously, when you are struggling paycheck to paycheck, this pretty much indicates that you cannot pay off your credit card balance in full, so then all of the interest rate charges, and other fees, systematically begin to be added to the balance for that credit card, each and every month, changing a credit card from being something that possibility was seen as a life saver to in actuality being a millstone around a debtor's neck.  So that many Americans, perhaps half of Americans, are in reality not bringing home enough money through their paychecks to sustain themselves, signifying that they are probably not really making a living wage.