To Solve Credit Woes, Use Cash.

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The Federal Reserve just put forward a plan that would clamp down on deceptive practices in the credit card industry. 

This is good news for consumers, and certainly for seniors --- often budget-squeezed and on fixed incomes. In recent years, lenders have devised increasingly devious ways of bilking card holders out of their money, like raising interest rates on old debt and shortening billing cycles. The Fed's proposals would restrict these abuses.

But no amount of regulatory intervention will completely solve the country's credit problems. A full turnaround requires that individual Americans take responsibility for their own financial well-being. One of the best ways they can do that is to use cash -- physical dollar bills -- for their purchases.

Relying on dollars makes it much easier to stick to a budget. You don't spend money that you don't have. Minor expenses won't ever balloon into crushing debt.

With credit cards, it's the exact opposite. Card companies want people to build debt. And they structure payment requirements to achieve that goal -- the average monthly minimum has dropped to just 2 to 2.5 percent. Even worse, they often raise interest rates arbitrarily.

At a recent congressional hearing, one man recounted how his card provider had increased his rate by 6 percent, and then informed him of the change with only a "small, loose billing insert."  Of course, American consumers, and all too many seniors, have willingly taken the bait. The Consumer Federation of America recently reported that the total amount of credit card debt nationally is around $850 billion, up four-fold from 1990. The average debt for families that don't pay off their balances each month is $17,000.

Unfortunately, America's love affair with credit cards shows no signs of waning. And more and more people are pulling out cards for minor expenses, like their daily cup of coffee. But swiping your card at Starbucks is bad economics -- for both consumers and merchants.

For consumers, it's taking out a single-digit loan that could easily morph into triple-digit debt within a year. Merchants suffer because they have to pay a fee to the credit-card company every time a purchase is made with plastic. So prices go up for everyone -- and ultimately cash users end up subsidizing credit-card users.

This year alone, credit card companies will make at least $30 billion in these fees. That's a hidden tax that takes billions of dollars from consumers' pockets.

Credit card companies make even more money when users are financially irresponsible. So it's no wonder that while most of the economy is in a nosedive, they've been flying high. Visa's profits rose 28 percent last quarter. MasterCard's stock price has increased 520 percent since the company went public in 2006.

The best way to avoid debt is simply not to take it on in the first place. That's why using cash as often as possible is such a good idea.

Little by little, Americans have been building up debt that will haunt them for a lifetime. It's good to see that regulators have finally drummed up the political courage necessary to take on the credit card industry. But to fully right the ship, people need to take control of their own finances -- and that means returning to the good old greenback.



James L. Martin is President of the 60 Plus Association, now in its 15th year advocating on behalf of senior citizens. Readers may write to him at 1600 Wilson Boulevard, Suite 960, Arlington, VA 22209, or

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