Before looking at this essay prompt, I was aware that credit card debt and delinquency was a problem, but not nearly invested enough to realize that this issue is responsible for $15 billion in damage in the United States alone. At the start of this summer I began working at my Uncle’s financial advising company. It has been through this job and through the personal conversations that I have had with so many people about their financial misfortunes that I can affirm that this is an issue plaguing our nation. One of the most common, and usually reliable, forms of attempting to minimize the problem is restricting the act of lending. Although this is probably the most effective tool put into place thus far, there are also down sides to this approach. Placing strict limits on lending makes it near impossible for the average person to qualify for a credit card when in all reality, a credit card has the possibility to help people facing financial issues when utilized properly. There are other mechanisms that have the capability of contributing to lessening this burden such as offering a budgeting and financial course to clients as a preventative and educational approach that has the possibility to address some of the major issue plaguing the credit card industry. It would be very important that these classes emphasize the concepts of earning more and spending less. Also, this course should reveal the power of interest and the stress it places on individuals that find themselves in debt. Once a client is considered a delinquent, the interest rates sky rocket. Often times, those that are in debt are only paying off the interest when on a payment plan because they cannot pay enough to address the principal. With a focus on these content areas, the course will enable the client to see the common problems credit card holders face before it becomes their own personal dilemma.
In addition to the budgeting and financial course that should be made available, another approach in looking at the issue at hand would be to analyze the current algorithm on issuing credit card limits. There is something being left to the side that needs to be taken into consideration when issuing a limit on a credit card. I believe it is important for a new algorithm to focus on limits based more so on “provable income.” For example, a client should not be issued a credit card with a limit of $20,000 when it is only shown that they make $15,000. Although this sounds rather simplistic, this is a large contributing factor to the amount of debt in our country.
Not only do these issues effect the individual who finds themselves in debt and the credit card companies that are lacking sufficient payment, the entire economy serves to pay the price. Examples of the economic burden of mass amounts of credit card debt include consumers distrust in the economy and with this in mind they spend less money. Additionally, debt limits the ability for an individual to save for emergencies and debt is correlated with high amounts of stress that is contributing to the decline of that persons physical and mental health. It is vital to understand that taking these two approaches into consideration confront some of the largest issues in the credit card industry. With proper implementation these ideals have the capability to dramatically reduce the overall credit card debt, especially in people that are typically unable to pay it off.
As I continue working for my uncle, I find myself learning more and more about the overwhelming situations so many Americans find themselves in. I take it upon myself to talk to as many friends as I can about the amount of responsibility it takes to properly manage a credit card. But these conversations do not even begin to touch other issues that are overlooked by the rising adult population such as medical expenses, student loans, and other financing mechanisms that are essential to properly functioning in our society.
