During the last decade, people took on more debt than ever before. For the first time, the average level of savings in a household reached a negative level, when measured as a portion of income. That means that on average, people spent more money than they made. Credit cards make this possible. They also make it easy to rack up debt problems if you aren’t disciplined.
With the economic downturn of the past few years putting many people out of work, some who had floated credit card debt and multiple mortgages were unable to make their payments. It is more common than it has ever been for people to carry large amounts of consumer debt, and it has been shown that people tend to spend more when they use credit cards compared to other methods. When you use credit, it doesn’t feel like you’re handing over money, and you get used to buying things without a solid plan to pay it off. Without correction, habitual overspending leads to credit debt so severe that they need to seek professional assistance from a bankruptcy trustee or a credit counselor in order to get control of their finances.
How did it get this way? It started innocently enough, and not all that long ago. Credit for retail purchases has been around as far back as 1730. For the next two hundred years, credit was offered by individual stores and companies, for things as varied as furniture, clothing, gasoline and telegrams. They were intended to make purchases more convenient for the customer. Financing was introduced by the Ford Motor Company so families didn’t have to plunk down their life savings for a Model T.
Though the use of consumer credit was made illegal while World War II was being fought, after the Allied victory, the economy rebounded, and the Baby Boom saw the growth of the suburban class, who were raising their families in new suburban neighbourhoods. Credit was brought back to allow families to spend more freely. The first modern credit card owes its development to a diner in a restaurant in New York City who found himself without a wallet when the check came. He was inspired to create the Diners Club card for New York City restaurant goers, and it soon became very popular, gathering over 20,000 subscribers by 1951, two years after its inspiration.
Early cards like Diners Club, Charge-It, and the original American Express card had limited time periods within which purchases had to be paid for in full, usually 60 days. The first revolving credit card, the Bank of America’s BankAmericard, was issued in 1958, allowing debtors to carry balances and make payments more flexibly. Bank of America developed the brainchild of licensing its credit card to other banks in 1965.
BankAmericard soon began to dominate the credit card market, with its biggest challenge coming from MasterCharge, introduced in 1967. By the mid-seventies, most independent bank cards were gone, swallowed by the two big licensing programs. To this day, most banks’ credit cards belong to these two programs, though under their current monikers-in 1977, BankAmericard was renamed Visa, and in 1979, MasterCharge was rebranded as MasterCard.
Most people with credit card debt have at least one or in some cases many Visa and MasterCard accounts on which they carry balances. Creditors seek to protect themselves by restricting card usage based on the user’s ability to repay their debts, but despite these measures, many debtors find themselves turning to bankruptcy trustees and debt consolidation services as their best option for regaining their financial stability. They lose the privilege of buying now, paying later, but that privilege is one that should not be abused.
Call the experienced and friendly bankruptcy Toronto trustees, dedicated to helping people regain control of their lives and find financial security.