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When the sky is falling, pay down credit card debt

by Peter Andrew

First, a warning: your blogger isn't an economist. Given the recent track record of those who are, you may well regard that as a plus. But you'd be as mad as a box of congressmen to follow his advice without doing some research of your own.

Secondly, another warning: the sky is falling! Now, this could, as Chicken Little discovered, be an acorn-falling rather than a sky-falling event. But this blog is being written at about 3:00 a.m. EST on Friday, Aug. 5 (how can you sleep?), and here's where we're up to. The current lead story on The New York Times website starts:

What began as a weak day in the stock markets ended in the worst rout in more than two years, as investors dumped stocks amid anxiety that both Europe and the United States were failing to fix deepening economic problems. With a steep decline of around 5 percent in the United States on Thursday, stocks have now fallen nearly 11 percent in two weeks.

This is a global problem. According to Yahoo Finance, Tokyo's Nikkei index lost 3.72 percent and in Hong Kong the Hang Seng dropped 4.36 percent overnight. London's FTSE 100, which opened only a couple of hours ago, has already dropped over 2 percent this morning, and that was after seeing about $80 billion being wiped off the value of the 100 biggest British companies yesterday. Heaven knows what's going to happen when Wall Street opens.

Sky or acorn? You decide.

Credit card rates, the debt ceiling and now

It's enough to make you nostalgic for the good old days. It was only last week that we had only the debt ceiling debacle to worry about, and a couple of weeks before that this blog (Credit card rates could skyrocket if debt ceiling hold, July 18) explored the potentially disastrous impact on credit card rates of a failure to raise it. It quoted Mike Thompson's apocalyptic predictions in The Detroit Free Press:

Failure to reach a debt ceiling agreement before the August 2 deadline would mean that legions of Social Security recipients would be without income, interest rates would shoot to the moon, America would plunge back into a deep recession, our military's ability to protect the country would be placed in jeopardy and the global economy could crash and burn.

The word "brinkmanship" is defined in the 11th edition of Merriam-Webster's Collegiate Dictionary as "the art or practice of pushing a dangerous situation or confrontation to the limit of safety esp. to force a desired outcome." Were the term not already to have existed, it would have been necessary to invent it just for this Congress.

Credit cards and recessions

So are credit card rates now safe? Probably yes, at least for the time being, though many expect them to rise, perhaps significantly, when prosperity eventually returns. But if today's "meltdown," "turmoil," "mayhem," "pounding," and "plunge" (© every newspaper in the world this morning) turns out to be the herald of another recession or depression then the likelihood of interest rates staying low is probably heightened.

However, such a contraction in the economy could threaten your income, and make your job even less secure than it already is. And you really don't want to go into a period of relative poverty and/or unemployment encumbered with high credit card debt.

So it doesn't really matter whether the economy recovers, in which case interest rates are likely to rise, or double dips, in which case money could be in short supply. If you choose to take the advice of a non-economist who can't tell an acorn from the sky, you'll reduce the balances on your credit cards just as quickly as you can.

Published 08/05/11 (Modified 04/20/12)


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