From the desk of Lead San Francisco attorney Alison Cordova:
The New York Times recently published an article titled “How Credit-Card Debt Can Help the Poor.” Immediately, I was doubtful of the premise, but read on. The article discussed how difficult it is for the poor to obtain credit or even rent an apartment without credit, pointing out that many jobs now run credit checks as well. Yet, it is very hard for the poor to come by credit.
The article points to a non-conventional way for the poor to build positive credit and not get caught in a credit card interest rate treadmill. A consumer gets a $300 loan through a local community development organization, and the money is put in a locked savings accounts. Each month the consumer pays $25, and for each $25 paid on time, another $25 is entered into the locked savings account. By the end, the $300 will be $600 and the consumer’s credit score will have risen.
The article then goes on to suggest that the poor should use this as a jumping off point to get a credit card. The objective of this exercise is not to help those financially struggling run up outrageous credit card debt, it’s to help them build a secure financial future. Although I disagree with the writer’s objective, I appreciate the program described above to the extent it allows a person to improve their credit and learn to save.
Americans are terrible at saving. “Last year, we saved an average of 4.5% of household income — about half the historic rate — and most of that was concentrated among wealthier households.”
If you aren’t saving money on a monthly basis, there is likely a problem. If you aren’t saving and you are carrying debt such as high-interest credit cards or old medical bills, then you need to consult an attorney who can help you get on the right path.