Have you ever thought you could charge your way out of debt with a credit card?
While this idea may be anathema to Dave Ramsey and his followers, one nonprofit organization is trying to make it work in order to help Americans who are in over their heads.
Neighborhood Trust Financial Partners is a legitimate, tax-exempt New York-based charity that has helped more than 30,000 low-income people improve their credit ratings.
Here’s how it works.
Neighborhood Trust issues what it calls a “Trust Card.” The cardholder is partnered with a financial adviser who takes a close look at the client’s financial status.
Then the client agrees to either maintain or increase monthly payments on what he or she owes at an interest rate of 12 to 15 percent, which is much lower than the rates of most cards these days.
There are some rules the cardholder must obey. Chief among them is a promise to consolidate all debts under the Trust Card. If cardholders use other high-interest credit cards while they are Trust Card clients, they violate the agreement.
The idea is to facilitate paying off debts in less time and encouraging clients to wean themselves off of exorbitant credit card charges. The credit line is limited, but it increases as the principal decreases.
So far, it’s just a pilot program. Only 50 cards have been issued in the Trust Card’s year-long test. But the good news is that none of those 50 cardholders is in default.
Justine Zinkin, Neighborhood Trust’s CEO, tells PopTech that credit unions have expressed interest in the program with an eye to copying it if it proves successful over the long haul.
If you’re wondering where the organization got the money for this idea, it comes partly from the charity itself with help from Innovations for Poverty Action and funds from the Ford Foundation.
For all of the federal-level hand-wringing about the national debt, the collective toll of individual debt is the real crusher.
We are buried under $850 billion of consumer debt, partly because of predatory lending, partly because of our materialistic society and partly because most of us realized too late that the rules of the game had changed.
Interest rates for borrowing are sky-high. Interest rates for saving are in the toilet.
And Congress long ago removed the tax exemption for credit card interest. If you’re too young to remember when that exemption was in force, ask your parents about it.
Meanwhile, title loan and payday loan businesses continue to prosper.
Some of us will continue to be credit junkies. And, like drug junkies, some of us will suffer tragic results.
However, I truly believe that most of us have learned our lesson and can discipline our spending habits if we can just get out from under the current pile of bills.
Whether Trust Card will work on a nationwide level remains to be seen. But if the middle class is to rebound to its former levels of success and comfort, consumers will have to do their part.