Perils of getting caught in debt trap

The global economic downturn has had its impact regionally as well. But many of us, trapped in past habits of spending more than we make, have simply not learned our lessons well.

I bumped into Haider, a long-time acquaintance, at a supermarket checkout stand recently. He was just ahead of me in the queue, and when his turn came to pay for his purchases, I noticed he had pulled out a credit card to settle the bill.

"Haider, isn't that a bit dense, paying for your groceries with a credit card? Why don't you just use a debit card to settle matters?" the writer in me wanted to know. "Why bother yourself with monthly dues and extra bills which you can do without?"

As we walked out of the store, he took me aside and explained. "Tariq, its a few days till the end of the month when my salary is due, and frankly I'm low on cash. After paying rent, my car installment, monthly payments on furniture I bought recently and other bills, there's not much left in the kitty. It's been a while that I could stretch my salary all the way through to month's end. And with today's rising prices, my wallet has really taken a beating. Credit cards pull me through these times, and I don't have to pay it all back at once; just a nominal minimum amount."

Now I know Haider and he holds a prominent post at a multinational company. "But surely Haider, your company isn't paying you peanuts, and the roll-over balance on your credit card will not do you any good. Especially on goods long purchased and consumed. You will be paying on this forever!"

From pan to fire

"I know, I know, but I feel so trapped now. Just recently, a bank called me and offered a new set of credit cards if they could transfer the existing balance on several cards I have. Tariq, I have several credit cards and they're close to being all maxed out. This bank claims that this move would help manage my various monthly payments into one small sum due to them. I think that would relieve some of the financial pressure."

"Haider, you know you're jumping from the proverbial frying pan into the fire if you do decide to go ahead with such a move. If you haven't managed with your existing credit providers, what makes you think that such a move would help you any more?"

Advising him to get some credit management counselling was on the tip of my tongue before I realised that we do not have such a facility that I know of, and I just wished him success before parting.

Credit marketing has been growing significantly in the past decade in the region awash with petro-dollars. Unfortunately, it has turned more into an exploitation of most salaried individuals, who are lured by the quick and easy ways of acquiring just about everything, and more often items they can do without.

Banks dispatch their representatives to your office door with swift sign-up forms in the hope of getting you on board, or else you get bombarded by telephone calls from their sales agents.

They seduce you with the promise that you will earn money when you are actually spending it. In their quest to sign up anybody with a monthly income, our lenders may have failed to serve regional societies in a responsible manner.

Our society had operated for a long time under the "pay as you play" concept. If you didn't have the money then, you either had to forget about it or else set aside something monthly until you collected the full balance.

Or gather up enough courage to borrow from a family member. And you had better prepared a good reason for your need. There was no easy money for quick access to material things that in some cases were not a necessity.

But in competing with the rest of the world, our lenders have in recent years made it possible for one to practically hock away his future for all things desirable.

Credit is well if used wisely. But the growing number of those complaining of the monthly credit squeeze indicates that ‘easy money' is taking its toll. And its not just the banks. Almost any major retail establishment you visit has set up or contracted credit facilitating agencies to ensure that you do not leave their store without purchasing the newer, bigger and better whatever.

What makes it more alarming is that our educational institutions do not prepare the fast growing youth population of this country, which today is the dominant bloc of residents, to be credit savvy. In our quest to play today, how many of us are being set up for a lot of grief tomorrow?

Tariq A. Al Maeena is a Saudi socio-political commentator. He lives in Jeddah, Saudi Arabia.