Wednesday, October 3, 2007

The Black Death of the 21st Century

Here's an interesting article from MSN about a recent trend showing up in the wake of recent foreclosures. Mrs Rossman sums it up perfectly (emphasis on the two conflicting concepts added by me):

They opted to let their mortgage payments go while keeping current on all their cards. "I would rather be late on one thing than on several things," said Rossman, who works at a local church, pointing to the "very high interest rates" on their cards and the need to keep accessing credit. "But we can't just incur debt forever," Rossman, 24, also acknowledges. "We're cutting coupons, eating very cheaply and doing everything we can to stay within the budget."
Mrs Rossman gets an F for logic; better to not pay your mortgage than not pay your 6 credit cards. Late on 6 debts is worse than being late on 1 debt right? You are reading this right. This family (with a new baby no less) has decided to stop paying for their house so they can keep current on their credit cards. Why? Because they need them, and they can't stop spending.
The proliferation of no-money-down home loans over the past few years, coupled with the current housing downturn, is giving rise to a new mentality: People will risk losing their homes while doing everything to keep their credit cards.
Credit card companies are ecstatic, of course, because not only does this ensure more profit at the expense of the consumer's security but it opens a whole new market for them. Yes, right when we have ample evidence (via massive foreclosures) that lending money to people with sloppy credit or little income is a bad idea, credit card companies are targeting just that demographic.
As people such as Delana Dowdy in Darby, Mont., found out, falling home prices and tightening credit have made it harder to withdraw home equity to pay off debts such as credit card bills.

"The appraised value (of the house) didn't come high enough to consolidate our bills," said Dowdy, 36, who runs an antique store. Right now, she's behind on both her mortgage payment and card bills.
See, it never occurred to these people to just stop spending beyond their means, they are disappointed that they couldn't sign up for a new loan with some nice home equity to pay off their existing debt. As if that would be some kind of solution?
Teesa Rossman and her husband bought their house for about $135,000 two years ago with no money down. But a subsequent -- though temporary -- job loss and the birth of their first child have strained the Rockford, Ill., family's finances in recent months. Just last month, the couple found it impossible to pay all their bills and had to choose between making payments on their mortgage or their credit cards.
Why would you choose to keep a credit card company happy (and fat) rather than pay for your home? What will they do when they come home and find the locks changed and all their stuff on the sidewalk being picked through by their neighbors?

I have a reason. The same reason why a homeless man will buy a bottle of booze instead of a sandwich. Addiction. The people mentioned in this article and those like them are addicted to credit. They are addicted to creating their own lifestyle regardless of the cost, they are addicted to the materialism and the consumption of "stuff". Spending money makes them feel good, makes them feel successful, and gives them a false sense of security. What happens, then, is the music stops and they are scrambling for a chair, clipping coupons and eating Ramen noodles, but the one thing that put them in this situation - their insatiable need for credit - is the one thing they can't live without.

Credit addiction is the Black Death of the 21st century.

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