Something that you'll hear me say time and time again throughout this course, the credit card industry does not exist to be your friend, or do you any favors? In order to get out of debt, you have to know the rules of the game, you have to know the secrets. I have read and studied the credit card industry at length and have come to one conclusion. Everything that the credit card industry does in terms of programs, fine print, rules, terms and conditions are designed to take advantage of one aspect of life, human nature, it could be human nature for us to be our own worst enemies. They design these programs to magnify the consequences of the smallest of mistakes, because when human nature kicks in, and we make mistakes, they make the most money. This next course is designed to help you identify those gotchas so that you will not get hurt by them again.

Hi, my name is Bob Brooks and welcome to the prudent money channel. You know, credit card companies are completely out of control today and I'm going to tell you so as the Consumer using credit cards right now, let's talk a little bit about some of the statistics according to card hub, total credit card debt becomes unsustainable when it exceeds 900 billion. So remember that number 900,000,000,973.6 billion of credit card debt was the record reached in August 2008. Prior to the financial crisis, if you think that prior to the financial crisis, we were on a debt frenzy in this country, loading up credit cards loading up all types of debt, which led to Part of the reason that led up to the debt crisis that we experienced between oh seven and oh nine, so 900 billion, it becomes unsustainable the records 973. Today, we're at 946. Now, by the end of the year, I predict we will be up over in a brand new record.

It's hard to believe everything this country went through during the financial crisis at all look at all because of debt. And we're back up to these levels again, you know, President Obama and the politicians in Washington decided enough was enough back in oh eight, no seven, when they looked at this massive amount of credit card debt. So they wrote legislation to stop abusive the abuse of credit card companies, credit card companies were doing all kinds of things in these contracts when you would sign on the bottom line and taking advantage of the of the consumer. And so they wrote all this legislation and designed to curb credit card abuse, but yet Did it work? And I want to suggest that it didn't work, because the new credit card terms and conditions are as abusive as ever. I'll talk about this.

They're doing the exact same thing they were doing back in Oh, wait, no seven. They're just worded differently. And consumers are unaware because they don't read or understand the details. Most people sign on the dotted line and they're blinded by the marketed benefit. You know, the $500 in travel credit, the $200 cash through cash award for you Putting $2,000 on your credit card, whatever it is, they're looking at that benefit. Or maybe it's the 18 month zero percent balance transfer.

They're focused on what the credit cards going to do for the credit card company is going to do for them. versus what are the details and let me tell you, the devil is in those details. Credit card balances are rising, as I said, you know, 946 billion, but it's interesting. If you look at that you would think like it was no 807 consumer spending was really strong. today. It's so it's, it's weak.

So you have people using credit cards in massive amounts, and consumer spending just kind of in a weak level. Consumers are accepting higher interest rates on average today than they were in Oh, wait no seven credit card debts going up to record levels, consumer spending is weak. So it makes you wonder, are consumers living off of these credit cards? Or are they spending up for pleasure? If you look at all the statistics, it looks like they're living off these credit cards. And accumulating debt that way.

Now, there's three true I called truisms of credit card companies. And I talk about this in my book deceptive money is that they're not there to do you any favors. They are there to make money, make no bones about it. And they act like they are there to do you favors they act like they're giving you a good deal. I've looked at more credit card deals through the years. And there's always a gotcha in there.

They're not there to do to give you a good deal. And the thing that you got to know about a credit card company is that they set traps to take advantage of human nature, they know exactly where you're going to make mistakes. And they penalize you greatly for this. The city card had a campaign for a credit card and I think I told us on another teaching video, but had a campaign for credit card that said no fees. And so they were specifically marketing towards the person who was always late. Okay, that was there.

That was who they're trying to get in as a customer on the credit card. And so they they had this this commercial That said, you know, if you, if you pay late, you're we're not going to, we're not going to charge you a fee, we're not going to charge you a fee for this or that it's a no fee program. So the person that's going to appeal to once again, is the person who's always late because they don't like the late fees. What they don't tell you is that if you're late, they're not going to charge you a fee, but they're going to change your pin on your interest rate for maybe 10 to 27%. They're gonna give you a penalty rates, but they're not going to charge you that fee. You see, that's always set you up.

If you have like one small mistake, you're gonna pay for it with higher interest rates. So let's talk about the latest credit card traps trap number one Terms and Conditions versus card member agreement. And you got to know this about a credit card company. And I would never sign a credit card on the dotted line without seeing the card member agreement. What they show you online is the terms and conditions. Now recent credit card offer that I looked into.

You look at the terms and conditions it's one page. I happened to find the card member agreement, which was your Supposed to receive once you use the card and incidentally once you use the card one time, you are you you automatically agree to everything in the card member agreement, which you have not seen yet. I found the card member agreement 17 pages of all kinds of information traps loopholes that you don't even know exist because they didn't show up on the terms and conditions. So you got to know that they that they don't send you the details, until you've already used and agreed on all those details by using the card. Number two penalty rates versus interest rates. The politicians in Washington were very concerned about this use of penalty rates.

So you start out you're have a lower interest rates, you're doing pretty good. You make a mistake, your 10% goes to 27% they penalize you automatically. And so they wrote into the credit card act about penalty rates and doing away with them today what they do, you won't find penalty rates in the languaging of credit card company credit card agreements. What you'll find is is They're going to give you an interest rate and arrange 16% for great credit, which is a joke, the 24% for bad credit, which is a penalty rate, make no bones about it, that is a penalty rate. So you're starting off in a credit card. If you've got marginal credit with a 24% rate, what's even what's even bigger joke is that if you've got perfect credit, and today, perfect credit would get you about a nine or 10% interest rate, they're only going to give you they're going to give you 16.

So they're taking that concept of penalty rates and they're changing it up based on based on their assessment of whether you're a risk or not. Trap number three, the universal default clause versus just a default. Back with these credit card agreements back before the card act, they have what's called a universal default clause clause. And basically with a universal default clause. If you were let's say you're with a Bank of America, and you're with a city city credit card And let's say that you are late on the city credit card. And Bank of America looks on your credit report and sees a bunch of late pays, they can put you into default or puts you into a penalty rates because of what you did with a another company.

And politicians had a huge problem with that, for obvious reasons that your actions over here are going to affect your perfect actions over here is kind of a kind of crazy. So this is the language you may use today, your account will be in default, if you fail to comply with this or other agreements with us or one of our related banks, or listen to this one, or we believe you may be unwilling or unable to pay your debts on time. That is no different than the languaging of a universal default clause. But yet that's what they're using, and they're calling a default. Now what's interesting to me, I have taken the opportunity to read the card act from cover to cover. It's a very large long document and it's the actual legislation they would have had to have changed that card agreement behind the card legislation, the card act behind closed doors or re or changed somehow because these companies are still practicing the same types of abuse trap number four the application of payments.

Oftentimes, you could have two different types of debt on a credit card, one at a lower interest rate and one at a higher interest rate. Now, this is they did this before the card act, I still think it's abusive. If you pay, let's say, let's say that you have $4,000 in your 10% and you have $4,000 and you're at 18%. You make a payment of 200. Guess where the $200 goes, they apply it to the lower interest rate so that the higher interest rate continue to grow and grow and grow. So you got to know that every time you make that payment, the minimum payment, it goes to the lower interest rate debt, keeping you into higher interest rate debt a lot longer than you like.

Trap number five can change the contract. versus today they call it amendments. Now, when you were when you signed up for a credit card back before the card act, they literally had a clause we can change the terms and agreements at this, this agreement for any reason at any time. Basically, they could do it in anything they want to what a horrible consumer contract where they can change the playing roles and change the game anytime that they wanted to. Well, what they do today, they call it amendments, they take that languaging out and they call it amendments. Listen to this.

We may change the terms of this agreement, including aprs, which is interest rates, and fees from time to time, we may also add new terms or delete terms. How is that any different if they can change the language in any way they want to? It's still in there. Trap number six can easily wind up in default. Now this is a new one. And I was very surprised maybe a little disturbed to read this in the one of the latest credit card agreements with city Corp.

So you got to be really careful This is this is the languaging that they use, your account will be in default, if you fail to comply with this or other agreements with us or one of our related banks, or get this, or we believe you may be unwilling or unable to pay your debts on time. Now, I don't know what what the reasoning would be just to throw you in default. And incidentally, if they throw you in default, that means that you're going to go into collections. And if you go into collections, every fee that they incur from trying to collect that debt from you, and by the way, it trashes your credit, your credit report, but any fee that that they incur, you're going to owe them back as well. So you're going to pay for all the credit collection process. I don't know what they would gain by doing it, but you give them the right if you are late with a payment, they can throw you into default if they choose to do so.

It's really surprising language and this is this is new trap number seven variable rates before the card act. You had rates that couldn't go if interest rates went up your credit card interest rate went up. If they went down your credit card interest rate went down. Or you could have a fixed rate. And Fixed Rate never changes, as implied by the name. So the fixed rates went away.

And they changed all the credit card agreements to variable rates. Well, we're at historic lows in interest rates right now they have no place but up to go. And so your 16 to 24% interest rates are going to start edging up. And so they everything that you that you apply for today is variable rate contracts. And it can make holding onto debt extremely expensive. And then this dangerous cycle, you know, consumers enter into a bad contract.

They don't know they're entering into a bad contract. They take on a little debt. That comfort level continues to expand that credit balance continues to expand more and more debt. And then they reach their maximum level. And human nature kicks in they make a mistake, they go into default, they go into high, higher interest rates will Whatever the case may be, because human nature happened, and now you have an overnight debt crisis, you can't make the payment or you're in a collection situation. It's a very dangerous cycle.

Credit cards are an essential part of the economy. They're an essential part of a personal finance because your credit score so very important credit credit card, what you do on that credit card can either increase or decrease your credit score. So they are inputting their their important payment system. Having said all that, today's credit card environments, you have to know what you're signing your name to, because this abuse of consumers through credit card agreements is still occurring, and you need to know exactly what you're getting yourself into.