Time to Pull in the Reins People

A new study by Standard & Poor’s reveals that the credit crunch is permeating consumers’ abilities to manage their personal debts. No guff!!

What is interesting however, is how this is playing out. Apparently credit cards are being used as a “source for cash” rather than a substitute for it – with 10% of Americans taking out more cash advances.

Obviously an act of desperation, but is it also futile? Cash advances are so costly that they will only exacerbate the situation.

If the smartest financial minds in Silicon Valley are demanding that their portfolio companies slash expenses by 25% – 50% (effectively raising internal capital), then isn’t it obvious that households should be doing the same?

Furthermore, according to the survey 35% of respondents prioritized their mortgage as the primary bill they would pay, opposed to 26% for their credit cards. While I understand that people do not want to lose their homes… thinking rationally, it makes *way* more sense to pay off a 20% loan than a 7% mortgage.

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2 responses to “Time to Pull in the Reins People

  1. If you get a cash advance, it might be just what you need to get by. You might be paying for a purchase over months. A cash advance can be paid in full in a week or so.

  2. i realize this. however, the cash advance will accrue interest without a grace period and most likely at a higher interest rate.

    -cb

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