h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

The Peter Principle state thats that within an organisation someone will continue to rise through the ranks until they reach a level where they have exceded their level of competence.

Finance organisations have applied this principle to credit card credit limits. Here's how it works - you apply for a credit card & are granted one with a suitably low credit limit. You religiously pay off the minimum amount required by the finance organisation, you also pay it off on time.

The finance company notices this & thinks "Good job. You can obviously afford to borrow more." They will send you a lovely, friendly letter saying what a wonderful human being you are, and more importantly what a wonderful (& wealthy) customer you are. They then increase your credit limit.

This cycle of paying off the credit card amount due & on time earning you an upgrade in credit limit continues until you are no longer able to pay off the mimimum amount due on time as you now have to decide between paying your credit card bill or eating.

At this point the finance company will stop sending you letters offering to increase your credit limit and start sending you letters of an entirely more threatening tone.

You have now reached a level where you have exceeded you financial competence. This is the The Peter Principle (Credit Card Corollary) demonstrated.

;^)#

The Way round this is to take out a second credit card, and use the second credit card to pay off the first card in monthly installments. As long as you can keep getting new credit cards, you can continue to spend money, never pay it back.

The down side is that If you manage to not get your credit limits extended, or your supply of new credit cards drys up, then you end up with the sort of debt that Netaid is trying to fix!

You have been warned....


Mic

You know, the real reaosn is that paying off your card is highly unprofitable for the credit card firms. But think on this: a while ago I phoned my bank and asked if I could sign a cheque for £6,500 for a new car. At the time I had about £1,500 in the bank, but I was going to transfer the rest from savings.

The bank suggested the cheapest way was to transfer some cash from my Visa card account into the current account, and then pay the bill in full - ningo, no charges.

Snag: this would require me to transfer about £5,500 from the Visa account, and my average monthly bill is £2,000-£2,500. Solution? We'll raise your credit limit to £8,000, sir!

So now I have an £8,000 limit on my Visa card - and I never did need to transfer that cash, because I got the money through in time!

I have a friend who couldn't get a credit card until she became unemployed. I guess they know if you're starving, you'll charge the groceries.