Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Monday, December 20, 2010

Credit Card Debt


Amortisation: The Monster


  • Create the problem: deficit
  • Provide the solution: cuts, cuts, cuts
  • Less, less, less out and more, more, more in

Crude, hopelessly inelegant,
but completely effective


Waking up, yet? George Orwell (Eric Blair) did. These visionary 'stories' are more popular today than ever. The ensnarement of the next generation [and the one before (yesterday) and after (today) and the next (tomorrow)] is still being played out.

Wake up!
Wake up!
Wake up!


To illustrate the principle of credit card debt, an interest rate of 16.8% (average) is assumed. Purchases totalling £10,000 are further assumed. The minimum repayment of 1% of balance or £25 (presumably the greater figure applies): 1% of £10,000 = £100. So, even if £100 is paid then the amortised interest exceeds this figure. It amounts to £10,000 + £140 = £10,140. Each month will have £140 added [16.8% x £10,000)/12] which is then amortised and the debt lives and grows and grows and… at a greater rate than it dies. Debt after 1 month from the start of the 'loan' becomes £10,140 and with amortisation increases by £23.52. Deduction of the repayment after all the interest is applied leaves a balance of:

  • Original ‘borrowing’ = £10,000
  • Interest at 16.8% = £140
  • Amortisation = £23.52
  • Owing balance = £10,163.52
  • Repayment (£100) = £10,063.52
The original debt of £10,000 has grown to £10,063.52 even after paying in £100. At least £163.52 has to be paid every month to just maintain the original debt. Many continue purchasing and the amount ‘borrowed’ (debt) continues to outstrip its reduction.

‘Borrow’ £10,000 through a credit card facility and pay £163.52 every month just to stay static. After 12 months, the repayments total £163.52 x 12 = £1962.24. The original interest (16.8%) on £10,000 = £1680. When amortised this jumps by an additional £282.24.

  • Repayment (12 months) = £1680 + £282.24 (= £1962.24)
  • New debt = £11,962.24 (= £10,000 + £1,962.24)
  • Amount repaid = £1962.24
  • New balance = £10,000
Completely unchanged after a payment of almost £2000.

To satisfy the parasite it must be fed more.


  • It's no wonder that depression can set in (like slow setting concrete around the ankles) as the realisation dawns that after paying in over £163 every month for an entire year, absolutely no movement in the extent of the debt happens. It may be acceptable for the lender to justify this slow death by claiming that the borrower should be aware. The nasty way that much is hidden and traps the borrower unawares is nauseating. Many have absolutely no appreciation of the dark side of the lending business and how it works. It's nasty and technically immoral. But it's business.

Amortisation becomes more significant when the interest rate is high. This applies to mortgages though the rate will be lower. Rates are set to what the market can sustain. What the consumer is supposed to be able to ‘afford’. Some shopper cards have an interest rate approaching 30%. Or £30 interest for every £100 ‘borrowed’. The illustration can be more frightening:

Rates can approach an outrageous 35%

Capital One Classic

"Get control over your finances with our low-limit,
easy-to-manage credit card"

(It's more like being controlled by your finances and 'easy to manage' is simply that the contract removes money from you 'quite painlessly (easily?)' - DA)

This is no more than exploitation of desperate conditions. Some doubtless overextend themselves, but others are drowning in UK debt. Maintaining low wages by the introduction of the cynical minimum wage device, enables the consumer market to thrive. The consumer is bombarded with the advice that they 'need' something when really they don't. Low wages encourages the credit facility to be used. Enter the trap. Treading water that is deeper than the consumer is tall. Inevitably, they will drown. It's all a question of how long they can survive in the ever-deepening water.

It's hardly surprising that borrowers can very quickly become ensnared in the milking system of credit. Lending institutions make borrowing very easy, but don't make people aware of the terrible dangers. That's the ethics (!!! DA) of this 'business'. The consumer is there to feed on. It's self-sustaining: the population grows and feeding rapidly turns into gluttony.

Before becoming trapped by an incoming tide, the speed of the growing danger can be fatally misjudged. Unless the danger is made clear then the unaware will inevitably be caught. The danger of driving a car too fast (especially in wet or icy conditions) is only really understood when it's too late.

Repossession

posted by Louis Brothnias @ 1:53 am