Sleeping with the Devil
There’s an old saying in Jamaica - I’m sure every culture has it’s own version: If you lay down with dogs, you get up with fleas.
I was more than a little surprised when I found out that a Toronto-based credit counseling service, recently renamed Credit Canada, had teamed up with Capital One to sponsor “the first ever Credit Education Week.” Hmmm.
According to Credit Canada’s website, ninety percent of Canadians say they have more debt today than five years ago. The site goes on to say, that eighty percent of us don’t know our credit score and that, “A credit score can be one of the most significant numbers in consumers’ lives.”
Only if you want to acquire credit. And since the credit counseling mandate is to help dopes who couldn’t handle their credit get out from under, it seems odd that they are focusing on helping people understand how to better their credit scores. So they can get more credit? Or so they understand that your level of indebtedness isn’t really the issue, it’s your ability to keep up with your minimum payments. Hmmm.
One little-known fact of the quirky credit scoring system is that if I pay my balance off every month in full, I will have a lower score than someone who makes all their minimum payments on time. Yup, that’s right. The credit score not only reflects how I handle my credit (kinda), but also whether I’m someone worth lending to. And clearly, if they can make money off me because I only make my minimum payments, then I score higher than if I make my payments in full every month - which is what we’re supposed to do.
Capital One also seems to be a strange choice of partner for a credit counseling company. I’m wondering why Credit Canada couldn’t talk a Canadian bank/credit card company into their plot to educate the masses. Could it be some residual fiduciary responsibility rearing it’s guilty head amongst our national banks? Hmmm.
According to Credit Canada’s website, “Capital One is committed to building awareness on all issues related to personal finance. We are proud to partner with Credit Canada, and we hope Canadians will take advantage of Credit Education Week events and resources to build their credit wisdom.”
I wonder if they’ve seen my episode with Corrina and Jay where their November credit card statement showed the following charges
Previous balance…$797.92
Finance charges…$14.45
Monthly member fee…$6.00
Overlimit fee…$29.00
Account balance premium…$8.27
That finance charge represents a fee of 21.9%, the monthly member fee another 9%, the over-limit fee a whopping 43.6% and the account balance premium another 12.44%. WOW!
Corrina and Jay certainly did have someone’s hands in their pockets, dontcha think?
Hey, I’m all for educating consumers about debt and how not to get into it. But I’m also all for telling people the truth about how credit works and the risk you put yourself in when you spend money you haven’t yet earned.
I’ve never been a big fan of credit counseling. It does work for some people, but for many more it’s not the right choice. The right choice is to recognize that the use of credit for the wrong reasons (more shoes, more furniture, more entertainment, more anything that doesn’t meet your basic needs) is dumb, dumb, dumb. And if you’ve bitten of more than you can chew debt-wise, then it’s time to cut back and pay off. Whether it takes a second job and not going ANYWHERE until you’re done with the debt, if you’re committed to getting out of debt, you have to feel the pain. It’s part of the process. Just getting your payments in line with your existing budget isn’t enough.
Besides, going the route of credit counseling leaves you with a crappy credit rating (yes, the very thing they’re trying to educate you about) for a long, long, long time.
Want to get out of debt? Bit the bullet. Make a budget. Create a debt-repayment plan. Then just do it!
It’s your life. It’s your money. Take control. And don’t take any wooden nickels along the way.
December 30th, 2007 at 12:55 am
From a former lender’s perspective: You’ll clear a bankruptcy faster than you will Credit Counseling (also known as Consumer Proposal). The only difference on your credit history is a bankruptcy will show up as an R9 and the consumer proposal will show up as an R7 - both are just as bad in the eyes of lenders when you’re asking for credit.
Some people are REALLY clueless about what they are doing by declaring bankruptcy/consumer proposal. They’d call me up and ask for more credit while their bankruptcy or consumer proposal was still pending - and then get upset with me when I told them that they’re actually forbidden from even applying for more credit until the courts have granted the bankruptcy.
Best thing for people to do is ASK QUESTIONS when you don’t understand something. Most banks are happy to educate their clients and there’s no such thing as a stupid question. If you don’t understand then ask for more information - and keep asking until you are satisfied that you understand. Don’t assume anything! My favourite clients were the ones who were asking questions along the way and were interested in learning more about how the process works and where the money goes.