Some people are hopeless at money management

I have known someone who acquired a few credit cards - five or six - with varying monthly payment and/or settlement dates.

Every month, she used to dutifully pay the minimum balance required.

The first bill in would be paid through the second credit card, the second through the third, the third through the fourth and so on. Ingenious, yes?

The outstanding balance on each card did not grow much because of the usage ceiling related to her salary.

But the trouble was the high interest rate on the balance. The average interest rate of 2 per cent per month on each of her cards was ballooning her overall debt month by month.

The situation became so bad that one day I got a call for an urgent meeting, during which I was asked for money to bail her out.

I lent some, but the situation did not improve. A month later, it was the same. I baulked.

The third month it became worse as banks were beginning to turn ugly, threatening her with jail.

She tried to negotiate with the banks, thought of slipping away from the country and even considered going to jail to be rid of the debt.

The trouble was that, apart from the credit cards, she also had personal loans.

On top of that she was a shopaholic and, depressed by her debt problems, had decided to uplift her mood by buying a GM Sebring apart from renewing her
wardrobe.

When I pointed out she looked perfectly fine in her current clothes, she huffed something about men, which I fortunately did not catch.

The point of this story is that some people are hopeless at money management.

But the more telling point is that it appears that banks exploit this hopelessness.

They are aggressive in palming off loans and credit cards in seemingly attractive packages, dressed with ease of access to tons of cash and credit.

A service representative at your door, 24-hour processing apart from the incessant calls and bombardment from SMS, proves how rich the credit card business is as a hunting ground for banks.

The slowdown has affected loans and to an extent the lower end of the credit card market, but people with decent credit history and salaries are still being pursued
voraciously.

And, after they fail on a payment, they are pursued mercilessly.

I know of a friend who defaulted on a payment. After a couple of calls from the bank, he still couldn't settle.

Soon a bank official came calling with a policeman in tow. The money was hurriedly arranged and paid.

To add insult to injury, the bank official brought out scissors and cut the credit card, closing the account in front of all at the police station.

The irony was that a couple of days later someone from the same bank called and offered the same card package to my friend. He was not amused.

For several years now, bank fees and income has been a substantial contributor to the bottom line.

The traditional profit centre earlier had been loans and advances.

More and more banks and even non-bank companies, are getting into the act because of its rich pickings - and they have been getting greedier still.

An Emirates 24|7 Poll revealed that almost 70 per cent had a credit card rate of 2.5-3 per cent; and another 17 per cent were charged a rate of 2-2.5 per cent, indicating a heavy swing towards high interest.

There were a lucky 11 per cent who were charged less than 1 per cent monthly.

I would like to know more about those.

Maybe I can switch my wife and eldest daughter's credit cards to one of those banks?

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