There’s Big Brother … then There’s Big Lots!


Yes this is the Big Lots! I am referring too.

It seems that they now want to get into the credit card business. Of course they are doing this with the assistance of some bank knows as Comenity Capital Bank. I don’t know much about this bank … but if you would like to learn more you can do that by going to their website Comenity.com.

I found it interesting that it was my wife who got this “Credit Card Offer” in the mail from Big Lots. She has not worked since about 1991 (for the past 29 years) and gets about 3 to 4 credit card offers each month. I have been working from 1967 through 2018 and very rarely ever received a credit card offer. I wonder why the man who pays the bills gets passed over when it comes to these credit card offers.

Oh, don’t get me wrong, I am personally glad I do get passed over. Take a close look at this Wonderful offer that I call Highway Robbery.

Now that interest rate may be hard to read so let me show it to you again here …

That is right … a whopping 29.99% interest rate on new purchases from Big Lots! Why don’t they just go ahead and say 30% … or better yet, “For every $100 you spend in our store we are going to charge you $30 to spend it with this card if you are dumb enough to use it.”

Folks, please don’t get hood-winked into obtaining these “branded” cards that are issued by stores and gasoline stations. They are some of the highest interest charges in the market place.

Here’s an article from just a few days ago that I found on the internet about credit cards and the amount that is fair charge … https://creditcards.usnews.com/articles/average-apr

In the article you will find this:

From US News.com

Some of these seem high to me … but none approach what Big Lots is asking for … a rate of 29.99%.

I am not saying you should not have a credit card or two. I have two … a Visa and an American Express. Neither of them charge these kinds of rates. What I am saying is that you need to understand just how much you are or could be charged for using them if not paying the debt in full when the bill is received.

Did you know … There is no federal law that limits the interest rate that a credit card company can charge.

The law of the state where the card company has its headquarters generally determines the maximum interest rate the card issuer can charge.

For example, a national bank charging 79.9 percent interest on a credit card is legal, as long as the issuer fully discloses the terms as required by the federal law.

Source: Wallethub.com

When I visited this site for the writing of this article I learned a lot about Usury Laws. https://wallethub.com/edu/cc/usury-laws/25568/

Now the Bible has a lot to say about the sins of Usury … but since I am not a theologian or minister I will not go into them here but would encourage you, if interested, to look them up or Google them on your own.

Because of the federal actions that rendered usury regulations functionally irrelevant, there is virtually no interest rate cap applicable to credit cards today. Competition among credit card companies and banks remains the only factor keeping interest rates at their present levels.

Today the highest credit card rate goes as high as 36 percent, much higher than the 24 percent cap set by states with tighter usury limits. While the 36 percent rate is considered usurious under many states’ usury laws, that figure is nonetheless legal. So long as the rate is listed on your cardholder agreement and you agree to it, the deal is kosher.

One positive effect of deregulating credit card rates involved extending credit to more consumers across the country. It amounted to more choices and increased consumer access to capital. At the same time, however, widespread credit card availability allowed Americans’ overall debt levels to soar over the next several decades.

So, while deregulation can be good … it can have unintended consequences.

In 1978, total revolving debt stood at $48 billion. By 1985, that figure was $131 billion. More than two decades later, in 2008, the Federal Reserve reported that total revolving debt had reached a high of $992 billion. In 2014, total U.S. consumer credit card debt stands at more than $850 billion. However, by the second quarter of 2020 the credit card debt in America is back up to $934.8 Billion.

Just a year prior to the Marquette decision, credit card ownership also rose from 38 percent of American households with at least one credit card to 56 percent by 1989. With more than 160 million Americans who now have credit cards, the current figure is 71 percent. This means that 71 out of 100 Americans have a credit card and most likely most of these have credit card debt.

The article in the link I have attached above is very good and very simple if you are suffering from credit card abuse. However, this is the best advice I can give a person:

Do not borrow for anything that is going to depreciate over time.

It is okay to use credit to invest in things that have the potential to appreciate over time … but do not use credit if you are buying something that you know will go down in value the minute you purchase it. The same can be said for the automobile. Why would anyone purchase an automobile on credit for $40,000 when they know the minute they drive it off the lot the value is going to drop to $33,000 to $36,000. That’s correct a 10% to 20% drop in value the minute it becomes yours.

On the flip side … If I can buy something that has the potential to APPRECIATE in value (such as a home or real estate) then credit can be good. I will dedicate another article to this subject later.

Over my 40+ years of working as a financial advisor I can’t tell you the amount of times I talked to people who had a car valued at $20,000 based on blue book values yet had automobile loans totaling $50,000. They not only bought new cars on credit … they did it every other year before paying off the one they had purchased previously. And with banks and car dealerships allowing 6 to 8 years to pay off a new automobile (Just to make the sale) it is harder and harder for people to get them paid off before they purchase another one. There used to be a time when 3 years was the maximum automobile loan period … then it was moved to 5 years and now I am seeing as long as 8 years.

The same can be said about credit cards. I can’t tell you the times I ran across potential clients that could not do business with me (and I was allowed to collect fees on credit cards) because I would refuse their business because they already had more than they could afford to pay off on credit cards and was paying the minimum amount due on each one. Some of these I would even work “pro-bono” for and set up a payment plan to help them get out of debt faster only to find later on that they had spent more money using credit cards that we’d helped them pay off.

I used to say people will (a) borrow money to (b) buy things they don’t need only to (c) impress the people next door who (d) they don’t even like and (e) end up paying a lifetime at the minimum allowed payment. It simply made no sense to me. Look at the example below from This Article:

Keep in mind this is with an interest rate of just 14.99% and not double that amount the 29.99% that is being asked for in the Big Lots Solicitation shown. In this example a person paying the minimum payment would actually pay $10,144.89 for the privilege to borrow $6,081 if they paid only the minimum due. However, if they paid the minimum plus $100 each month then the cost would be $7,490.26. Of course if they would simply use cash the cost would only be $6,081.00.

Naturally, if you can pay more than the minimum plus $100 each month … you should do so.

There was a time when companies like American Express did not even charge an annual rate to use the card (they charged a membership fee instead to generate profits to the company). Theirs at one time was a “Card of Convenience” used by the rich who did not want to carry around a lot of cash. Perhaps you remember the old ads “Membership has its privileges.” Well, that almost ended the company when they started issuing cards to people who could not pay when the bill came due and they would have to cancel their card. Hence, they now also have a way to pay on “credit” rather than “when due.” Of course this did not stop them from charging a hefty membership fee on the card.

Now I am not saying credit cards are all bad (if they have a lower interest rate) and, if they are not abused. They can be a big convenience – especially for those who for one reason or another does not want to carry a wad of cash on them. However, if you are going to use them (and to set a Hotel/Motel Reservation or to purchase online you must use them) – it is important that you pay the bill when it comes due or be prepared to spend more than you really wanted to and in most cases to purchase things you really did not need at the time. If you cannot pay the full bill when it comes due (and this may occur even to the best of you if the bill is for medical necessities) then at least develop a plan to pay it off as soon as possible even if it means giving up some other things you may want or need.

Try as much as possible to stay away from “Branded Cards” since those will cost interest not only to the sponsoring store but also to the bank providing the card services.

If you have adequate income sources and cash … then by all means consider the use of a debit card over and above the use of a credit card. Let that purchase be zapped right out of your bank account … at least that way you know it is paid for on the spot. If you are going to use the credit card … no in advance whether you can pay the bill when it comes due. If you can’t, then you probably really don’t NEED what you WANT to buy.

As for car loans? Once yours is paid off … don’t run out and buy another car unless yours is simply falling apart and it must be repaired daily. Keep driving it and keep investing your monthly payments into an account that is going to let you pay cash for your next car.

As of January 08, 2020 the average monthly car payment in the U.S. is $550 for new vehicles, $393 for used and $452 for leased. Overall, Americans owe more than $1.2 trillion in auto loan debt (Yes, that’s Trillion with a “T”). Auto debt makes up 9.5% of American consumer debt. On averageAmericans take out about $51 billion in 2.3 million new auto loans each month.

Source: Lending Tree

So, if you have been paying $550 per month for that new car and finally have it paid off … keep setting aside that $550 per month. With no interest in a period of just 91 months you will have enough money accumulated to purchase a $50,000 automobile for cash. That is only 7-1/2 years … and any new car should last that long. Of course if you are smart and investing your money for gains or interest … you will accumulate enough to purchase a new care over a period much shorter than 91 months.

I purchased – and paid cash for – a 2001 Tahoe in the fall of 2001 and still have it and it still runs pretty good even though it does have 480,000 miles on it. I’ve owned it for 19 years and my brother still uses it when he comes to visit our mother rather than renting a new car. So, I know that cars are made to last if you take care of them. In this case I have yet to put a wrench on the engine. I have changed an alternator, an air conditioning compressor, the brakes and the tires … but nothing has been done to what makes it run other than constant and regular oil changers and always burning high octane premium fuel even when the book and dealer said I could run low octane regular fuel. My mechanic is even amazed and brags quite a lot that I’ve never changed a spark plug or a spark plug wire on the old beast and it still starts every time I turn the key.

Do I have a newer automobile? Yes, that I also paid cash for when I wanted it … I never really needed it. I also have two motorcycles that I paid cash for (one new and one used).

Learn to live Debt Free and you will never have to be a victim of Highway Robbery or a victim of Big Brother! Does my wife still do business with Big Lots? Yes, she is there as I work on this article – but I guarantee you she is not using their charge/credit card.

Have a great Debt-free life!

Jerry Nix |Freewavemaker LLC

2 thoughts on “There’s Big Brother … then There’s Big Lots!

  1. Jim

    Another case of Nixon’s. Great advice and I found myself owing maybe 60k in high interest cards. Min payment was less than the interest. No problem when my monthly income was close to what I owed but times changed and my income dropped to maybe 3-5 k per month. Big problem and they hound u day and night. I hated talking to the collectors and my attitude sucked which is the kiiss of death in the sales game. Very little income big debts and no where to go. That was maybe 10 years ago and today I have no card debt and my income has come back and life is good. Sure would have been easier if I had never taken any of these cards. If anybody is having the problem I did I may can help and no charge

    Like

    1. Jim, thanks for reviewing and commenting on my article. If I hear of anyone having debt problems I will send them your way. As for myself I find it great to be retired and debt-free. No headaches … just have to keep the lights on and I’m all good. ~~~ Jerry Nix

      Like

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