The Deviling Number in Some People's Lives

Lots and lots of people have a devil in their financial lives.

This particular devil comes, not in a blue dress, but in pure, unadulterated numeric form, and is always in the double digits.

For many of these bedeviled people, if somehow that double-digit-devil number were to miraculously change into a single-digit number, then, quite literally, most everything in their financial world would be OK -- they would, at the least, have much better financial health and, in many instances, they would be transported all the way from ill financial health to decent or even great financial health.

But, as is, what with this deviling number having a full complement of two digits -- often with the first of those digits being a 2 or a 3 -- these people have such dreadfully woeful financial health that bankruptcy may well be in their future.

And, yes, it truly is that black and white: if this number happened to be 9 or less, these folks would be OK, but with it at 20 or more, they're often well-advised to seek bankruptcy counsel.

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Have you guessed what the bedeviling double-digit number is?

For some readers it's obvious, because they've previously walked down the forsaken path inhabited by the devil number, or, less happily, because they're currently on it.

And for others this whole topic is a big mystery because it is just not anything that has ever even come close to entering into their lives. They're fortunate -- though perhaps with an outlook a bit more rose-colored than would be ideal, so that they just might be too far removed from most people's reality to understand what life, in all its many aspects, truly is like.

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Here are two last hints.

Hint Number One is that the devil number is, in some contexts, totally illegal. For instance, if you or I were to use this number in our life, it would [spoiler alert: do not click on any links from here on in if you want to figure this out on your own] probably be illegal in all 50 states and for sure would be illegal in California

But for the financial services industrial complex? For them it is 100% legal. They can use the number all over the place.

Hint Number Two is that the devil number and its ilk have been the stuff of essential moral discourse pretty much since the beginning of recorded history, what with it playing roles in both the Old and New Testaments, in the Qur'an, in papal decrees from the Middle Ages, and on and on. And then there's that whole thing with Shakespeare's The Merchant of Venice.

Got it?

If not, the next section just might jolt yo into it.

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If you've ever wondered at the power of nine people in black robes to change our lives, you need look no further than the United States Supreme Court case of Marquette National Bank vs. First of Omaha Service Corp., 439 U.S. 299 (1978).

Likewise, if you've ever wondered why credit card company addresses tend to be in South Dakota (and, if not there, then usually in Utah or Delaware), you can trace the source right back to the decision of those same nine Marquette justices -- back to that group of old'ish, 88.8888888888888888% white (Marshall became a justice in 1967) males (O'Connor became a justice in 1986) sitting in DC in the highest court of the land, all the while wearing polyester robes that, frankly, make them look quite as silly as barristers in the UK when they don their white wigs.

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General purpose credit cards were born towards the tail end of the great baby boomer birthing, in the late 1950s/early1960s. Prior to then merchant-specific credit cards ruled the land.

The shift to general purpose credit cards was a big one, because merchant-specific credit cards were all about moving product, whereas general purpose credit cards were all about lending money (which, to a bank, is indeed moving product).

See here for a great article on the history of all this.

Back then there was BankAmericard, which we now know as Visa, and Master Charge, which we now know as MasterCard, both coming out of that hotbed of radical entrepreneurialism now (and then) known as California.

American Express, a company that can trace its origins as the FedEx of its day all the way back to the mid-1800s, got into charge (not credit) cards around the same time. Unlike credit cards, the AmEx charge card had to be paid in full each month; it wasn't until 1987, not long after the Marquette 9 had had their say, that AmEx issued its first credit card.

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So what did Marquette do?

In practice, it de-regulated credit card interest rates, as in you guys can go ahead and charge whatever you want.

The case came up when a Minnesota bank sued a not-quite next-door-neighboring Nebraska bank for coming into Minnesota and charging interest rates which, while legal under Nebraska law, were too high to be legal under Minnesota law. So it was a classic choice-of-law sort of case

Going back to a federal law that was more than 100 years old, called The National Bank Act of 1864 (yup, a federal law enacted during the Civil War, so you can just guess what all was going on when they passed that one), the Court said that the NBA of '64 allowed a bank existing at the federal level (as opposed to a bank existing at the level of a single state) to charge whatever interest rate it could charge in the state in which it was headquartered, even if that rate was higher than the rate allowed by the particular, other state in which it was doing business.

The Marquette opinion was unanimous; Justice Brennan, revered jurist of the left, was its author.

Forevermore, then, in a classic case of having your cake and eating it too, a nationally-chartered bank could charge whatever interest rate it wanted to, so long as that rate was legal in the state in which it was headquartered. That meant that the big nationals could go out and roam in all 50 states, subject only to the interest-rate limiting usury laws of the single state in which each was headquartered. They were, at that point,then, free-ranging.

Before long, Walter Wriston, the legendary CEO of Citi, reached out to Bill Janklow, a fellow we now know to be a manslaughtering felon, but who was then governor of the great state of South Dakota, and, presto change-o and lo' and behold, a state which was struggling to make ends meet suddenly decided to lift all restrictions on the interest rates rates a nationally-chartered, locally-headquartered credit card company could charge, after which Citi pulled up stakes on its New York credit card operations and moved the whole shebang, lock stock 'n barrel, to South Dakota. Yeehah!

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And the rest is history. Credit card companies -- Visa, Mastercard (and the banks that operate through them), together with Amex, Discover and a few others -- now rule over the land, all from their home bases of South Dakota or one of other follow-on states that came after it, each state with its particular charge-whatever-you-want way of saying, Hello, dear, dear credit card companies, please do come on in -- we've set out the welcome mat just for you.

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Credit card companies also rule over many, many people's lives, at a very up-close-and-in-their-face level, because once they get their claws into somebody -- and it's an iron claw at that -- they will mostly never, Ever, NEVER, EVER let go.

It's clear how to avoid that iron claw: you must never take a loan from a credit card, i.e., if you use a credit card, then you must pay off the balance each month.

In that way, for a few weeks you have free use of their money , but you have never borrowed it in the sense of Well, now, my sweetie, now you have to start paying us interest.

So if you pay off your balance each month, the devil number of 20% or more doesn't come into you life: no iron claw.

This, then, is key:

Credit card companies
have no power over you if
you never carry a balance forward

If at all possible, then, you must never, Ever, NEVER, EVER carry a balance forward on a credit card -- that's how they get their claws into you.

Instead, use a credit card only as a great charge card and as a great accounting tool (one day I will write in here about ZTABS -- the Zero-Touch Automated-Bookkeeping System -- which helps clients keep track of their spending without any effort at all).

And always, Always, ALWAYS remember that a credit card is a truly devilish source of a loan.

And if you can't remember that, or you can remember it but you end up taking out loans via credit cards anyway, then get ye out the scissors and destroy-eth ye credit cards. Be gone ya devil! Be gone!

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So how about the numbers? What does the difference between a reasonable credit card interest rate and a devilish one look like?

Let's say that you owe $10,000 on a credit card and it carries a 20% interest rate (not at all uncommon). Then to simply stand still, you need to pay $166.67 per month; if you do that for the rest of your life, and the interest rate stays the same, and you don't incur any fees, then you will die owing that same $10k.

If the interest rate was instead 30%, the stand-still monthly payment would be $250.

If instead you wanted to fully pay off the loan in three years, at 20% your monthly payment would then be $371.64, while at 30% it would be $424.50 (note for the wonky: to calculate these numbers, you can use the PMT function in Excel, and it's also quite easily done on an HP12C).

At 20%, your payments over those three years would total $13,378.89, while at 30% they would total $15,282.57

But how about at 10%? That seems like a pretty reasonable interest rate, doesn't it -- especially right now when interest rates are essentially nil for short term money?

What then?

First of all, your stand still payments would be a mere $83.33 (rather than $166.67 or $250 for the 20% and 30% loans respectively). And your pay-it-off-in-three-years monthly payment would be $322.67 (rather than $371.64 and $424.54 for the 20% and 30% loans respectively), for a total payment of $11,616.19.

So at 10% you pay the bank about $1.6k for the privilege of paying for borrowing $10k and paying it off over three years' time -- about 16% more than you borrowed. At 20% you pay about $3.4k over time, or about 34% more than you borrowed. And at 30%, you pay $5.2k more than your borrowed, or more than half.

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For a lot of folks, then, the difference between 20% and 30% interest on their carried credit card debt can make all the difference. Unfortunately, once a credit card company has its iron claw firmly implanted in your gut, there's not much you can do: they got'ch'ya.

It's rather like the situation when someone has a health insurance policy in place and also has a pre-existing condition. They are stuck with that one insurer.

It used to be that it was possible to move your balances elsewhere, but lately, not so much, as about two years ago this alternative went the way of the dodo bird -- right around the same time that credit card offers stopped choking off our mailboxes.

So now, if you owe 'em, they just plain ol' got'ch'ya.

And, even after the most recent legislation on credit cards, credit card companies can still choose to charge whatever interest rate they wish, so that, literally and technically, they could charge, say, 1,234% (at which point your standstill number for the $10k loan would be $10,283.33 per month, and your pay it off in three years monthly payment number would be $13,3878.89).

As it turns out, then, this South-Dakota-born, middle-class-decimating, financial-services-industrial-complex-fortifying, the-sky's-the-limit interest rate milieu is a runaway train which not even the biggest legislative bank backlash in 80 years was sufficient to curtail, let alone abolish.

* * *

In the real world in which we live, this runaway train is the devil incarnate for millions of people, sucking the financial health right out of them the way dementors suck the life out of 'arry Potter and 'is buddies.

Wouldn't it be nice, then, if something, as if by magic, caused the devil to go away?

Please don't hold your breath.

Instead, remember, please do whatever you can to avoid using credit card companies as lenders.

Use them that way if you must for medial emergencies, life emergencies, etc. But for everything else, weigh the misery that the iron claw firmly implanted for years-on-end in your gut will cause you, against the momentary pleasure of using the plastic to obtain something you simply cannot afford.

After all, how much pleasure can it give you if you know, all the while, that hand-in-hand with that pleasure will come something which will wreak havoc --- to the tune of 20% or 30% -- upon your financial health for years and years to come?

Please do not use credit cards for loans.

S'alright?

S'alright.

* * *

I'll be taking time off from writing until after July 4th.

The write-it-short experimentation has been a bit of a bust (entries are averaging over a thousand words, which is about twice my aim), but it's also been a bit of a kick because there is so much to write about, and it's a joyful thing to do, what with it gushing forth pretty much non-stop, which is a nice thing to have gushing forth pretty much non-stop, especially compared to something else, so much in the news these days, which is gushing forth totally non-stop.

'Til July, then, here's to your financial health, and may it continuously improve


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