Living Beyond Our Means
I’m standing in a cash machine, money swirling all around me. My coworkers are cheering me on. I’m reaching out, trying to grasp at the bills. I catch one, but then in trying to grab another, I see both slip through my fingers. The wind of the machine never stops. I’m oblivious to the metaphor, but I’d understand it later on.
I find it remarkable how much of a role credit cards have played in my life. When I was a kid, no one I knew had a credit card. They were for rich people. We had what we had and that was the end of the story.
Credit cards first began to appear in the early 1950’s, not as a way to borrow money, but rather as a tool of convenience for traveling salesman, which was a common career back then. Over the ensuing decades, credit cards gained popularity, and in the 80s and 90s, credit card companies began to understand their sweet spot: Cardholders that couldn’t afford to pay off their balance each month, but could continue making a minimum payment. These are called “revolvers” — they have a willingness to spend and a willingness to pay a little each month. Basically, they’re willing to live beyond their means. And by 2012, each household in America owed, on average, over $15,000.
In 1983, Charles Cawley, the cofounder and CEO of MBNA hit upon on an idea that ignited his company’s evolution from a fledgling enterprise to a financial powerhouse. He persuaded the alumni association of Georgetown University, his alma mater, to sponsor a credit card for its members, and the concept of affinity lending was born.
Mr. Cawley recognized that people were more likely to use a card that was cobranded with some personal affinity than that of their local bank. Likewise, these cardholders — swearing allegiance their college, their favorite NASCAR driver, cartoon character, or sports team — were less inclined to shop for lower rates, less likely to default on their debts, and more willing to pay an annual fee. They tended to carry a sizable balance and roll it over from month to month, incurring interest charges. That made them ideal customers.
Mr. Cawley had a house — one of many I presume — in the area where I grew up and when I was in high school, he moved a large part of the MBNA company into the area. They brought a flood of money. They fixed up old buildings, beatified the parks, and provided good paying jobs. They also started a scholarship program. In the inaugural year I was selected as one of the recipients, winning a repeating scholarship, entrance into young leadership program, and a summer job.
So, the summer after my freshman year, I worked as a Balance Transfer Specialist. When you got your shiny new credit card in the mail, there would be a sticker on the front telling you to call to activate the card. When you called, you got to speak to me and I had two tasks to perform. Firstly, I needed to make sure you hadn’t stole the card and were who you said you were. So I’d ask you your mother’s maiden name and various other security questions. Secondly, I would attempt to get you to transfer any existing debt you already had onto this new card. My computer would tell me about the amazing introductory rates I could offer. Zero percent for 6 months. Five percent for a year.
Most people just wanted to activate their card and get off the phone, but they prepared us for that. The taught us how to rope you in, how to overcome objections, how to explain that getting your debt at a lower rate was in your best interest. We had scripts and tricks to make you see the light.
We got credit for every balance transfer we completed. Sometimes, you’d get the perfect caller: a desperate soul that was shifting around incredible amounts of debt to stave off interest payments. These callers helped us hit the goals they set for us each week. We were all in competition with each other to transfer the most debt onto the company’s balance sheet. Each week, there would be a winner of some prize and that’s how I ended up in a cash machine.
I never felt right about any of this, but it was more money than I ever made in my life and it was expected that I would work the job because of the scholarship. I made it through the summer and returned to school. The following summer, they changed my job. This summer, the computer would dial a phone number a name would flash up on my screen. I would mispronounce the person’s name and ask if they had received the new credit card we’d sent. I was only asking because we wanted to make sure you had got it and let you know we had a special introductory rate for balance transfers.
I asked to go back to accepting calls instead of making them, and they said they’d try. After a couple weeks of inaction, I threw my badge on my boss’ desk and quit. They were upset, but let me keep the scholarship. I spent the summer working two jobs. I managed a small office during the days and cooked in a restaurant in the evenings. It was a good choice.
I remember feeling sorry for these people with these huge balances. I didn’t have a credit card myself and figured I never would. Oh, how wrong could I be.
New York City is an expensive place. After I arrived in 2002, I struggled to find work and when I did, I wasn’t paid much. I did get a credit card and it kept me afloat, or rather it kept me from making hard choices. I always had faith I would earn more money in the future so I allowed myself to live slightly beyond my means, making minimum payments and carrying an increasing balance each month. I took a cash advance to cover the broker’s fee for an apartment. I became a “revolver.”
Later on, I did make more money and I was able to pay off my credit card. However, when I decided to quit my job and cofound a startup, taking in very little money for my time, I found my debt rising again. Once again, I figured the money would come later and I would be able to pay it down again.
I know that I’m one of the lucky ones. I’ve been able to pay off my debt, though it has taken serious budgeting and a willingness to live below my means for a time. Pay now or pay later, but you will pay.
The irony is that I made the money to pay my debts while working at ad agencies that had credit card companies as clients. In working for credit card companies, I learned about reward and loyalty programs. We used terms like “Share of Wallet” and “Earn and Burn.” We built communities around identifying you with your credit card, making sure you saw it as an essential feature of your financial life. We were in the business of getting you to spend.
So we would help the credit card companies acquire and retain customers and in turn they would pay the agency. The agency would pay me and then I would pay the credit card companies.
It just goes to show that with credit cards, the money can flow through your fingers, but you’ll never be able to grasp it, at least not for long.