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Credit card debt hitting Latinos hardest
Person pulls debit or credit card from wallet.
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Tess Vigeland: No matter who you are, or where you come from, reducing reliance on credit cards has become a priority for many families. But some communities are having a tougher time doing that than others. A study by the NAACP showed 79 percent of Latino households carry credit card debt, compared with 54 percent of white households. And when it comes to the interest on those cards, Latinos pay a much higher rate.
From WAMU in Washington, D.C., Rebecca Sheir reports.
Rebecca Sheir:Lee Sanchez is a 31-year-old software developer in Silver Spring, Md. A few years back, he and his wife, Fannie, sold their house for a profit of $112,000.
LEE SANCHEZ: A good chunk of change, good chunk of money!
The likes of which they'd never seen before. But the windfall from the house sale didn't last long.
SANCHEZ: Growing up with my family, there was never really discussion of putting your money away. There's a short-term mentality. You know, that money's in the bank account? Let's go ahead and spend it!
And spend they did, on improvements to their new home.
SANCHEZ: We just went crazy! I mean, floors were put in, carpet, painting, front molding, furniture -- you can hear the cha-chings as I'm talking.
Sanchez had three kids in school and no savings to fall back on. Then he found himself out of work for a month. Sanchez says they should have cut back. But, instead, they pulled out the plastic.
SANCHEZ: We charged up like $15,000 worth of things within that one month because of bills that we had. It was pretty hectic.
Lee Sanchez went from having more than $100,000 burning a hole in his pocket to being $15,000 in the hole. Which is why he destroyed all his credit cards -- except one.
SANCHEZ: I have one for an emergency. But the ones that really got me in trouble, you do the bending thing about 30 times, they get really hot, then you rip it in half and throw it away.
But Sanchez is having a heck of a time throwing away his outstanding balances. Two years later, he still owes about $6,000.
SANCHEZ: And these interest rates on these cards, one I have is like 15-, the other one is like 20 percent.
And thats not uncommon in the Latino community according to Janis Bowdler, a wealth-building expert with National Council de La Raza.
Janis BOWDLER: We know that Latino families are more likely than whites, with a similar profile, to have interest rates over 20 percent.
Bowdler says many Hispanics shes spoken with are fed up by what they see as the tricks credit-card companies play. She says Latinos often justify their spending by only using credit for so-called emergencies. But when you ask what they mean by that...
BOWDLER: We found groceries and diapers were the emergencies families were using their credit cards for.
Not that using credit for everyday essentials is inherently wrong. Or so says Curtis Arnold, founder of CardRatings.com.
CURTIS ARNOLD: The bad part about it is using credit for necessities, and then not paying off your balance in full, not sticking to your budget. And suddenly you start paying 16-, 17-, 18-percent interest on groceries. And that's a recipe for disaster.
The problem, Arnold says, is what he calls a lack of financial literacy.
ARNOLD: Credit education in the Latino community is lacking. Now in general, all Americans are lacking, so I'm not picking on one community in particular.
But, he says, many credit-card companies are. Arnold says they prey on minority communities, like Latinos, targeting them with subprime cards marketed as starter credit.
BOWDLER: These are high-interest rate cards, with low balances that can really set a family up to fail.
Again, Janis Bowdler.
BOWDLER: So that their first experience with credit can trap them in to a cycle of really burdensome debt.
As Lee Sanchez struggles to get his head above water, he says he lives for the day he can get both of his credit-card balances below $1,000.
SANCHEZ: If I get below $1,000, I'll be doing cartwheels in the front yard!
In the meantime, he and his wife are keeping much closer tabs on their budget.
SANCHEZ: People think we're being cheap now! But we're not: We're just trying to change our ways. You know, change our ways.
By saving more, knowing when to use plastic and when to use cash, and teaching their children to do the same.
In Silver Spring, Md., I'm Rebecca Sheir, for Marketplace Money.
The person in this story "LEE SANCHEZ" 31 year of software developer, spent all the money on unnecessary items without any saving. This is why he has accumulated the debt and the credit card company charges him 20% interest which isn't uncommon. What I am saying if people take credit for granted and don't consider the cost of borrowing other's money, they will end up paying for it.
Minorities and young people are often preyed on by the credit card companies for failing to read their lengthy, sometimes incomprehensible contracts. In fact, a study found that while most American adults read at or below an 8th grade level, credit card contracts are usually written at at least a 10th to 12th grade level.
Source cited: http://www.creditcardconsolidation.com
Your story infers that 15 - 20% interest is unusually high and aimed at minorities. My child is neither, never missed a payment on her card, but they raised the interest to more than 30%. This is one case where minorities are NOT being singled out and you shouldn't intimate that it is.
I'm shocked that your "expert" states that using credit cards for groceries & diapers is NOT inherently wrong!! I recall being taught the very basics of credit card use, and the very first rule of thumb being never use credit for things that you will be done consuming by the time you pay for it, or worse be paying interest for. One should never want to still be paying for items that are already long gone. People, myself included, listen to your show for SOUND advice on how to handle their finances--I'm just so shocked you let that statement go without any caveat.
