Albanian and Other Newcomers to America Should Beware of Easy Credit

From: “Easy Credit: A Wall Around the Poor” by Fred Waddell, The New York Sunday Times

Reliance on credit cards and other forms of credit can mean paying nearly an extra 20 percent to live. Poor people and others who rely heavily on credit would be outraged if retailers directly attached a 20 percent surcharge to every purchase they made with a credit card. Yet this is exactly what they are doing themselves with interest payments. The burden becomes even heavier with frequent, costly penalties and harsh collection practices that are often faced by people who have problems paying their debts.

Under the facade of the democratization of credit, lenders are expanding their business to borrowers with poor credit histories and to low-income, inner-city residents, who are often members of minority groups. Then, when the borrowers default on their loans, these same lenders are the first to call them deadbeats and to cry to Congress that bankruptcy laws should be changed to force them to pay their debts.

If a woman making $6 an hour accumulated credit card bills and other loans totaling just $9000 — not an unusual amount for a low-income consumer — she would have to work 300 hours during the year just to pay the interest on this credit, without reducing the amount owed by one cent. This means that someone working a 40-hour week would work 7.5 weeks in a year just to pay the interest on the debt.

What is needed is more education in money management and the use of credit — beginning with training for organizations and individuals who work with the poor. The poor and those who purport to serve them must understand that the issue is not the availability of credit at any cost, but rather the informed and educated use of it.

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