Do Israeli credit card companies think we’re stupid?

As originally appeared in The Jerusalem Post on December 21st, 2018.

What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?

-Adam Smith

Last week as I was driving home on the Begin highway after having to drive my girls to their high school because they were late, I thought I noticed a billboard about getting out of debt. My eyesight isn’t what it used to be and at full speed, I wasn’t able to make out what it said. Well a few days ago, again after driving my girls to school (notice a pattern?) I was once again on the Begin and I was stuck in traffic. Lucky for me I was stuck in traffic directly in front of that same billboard. After reading it and then reading it again because maybe I missed something, my blood pressure shot up, and I was in complete disbelief. The billboard was from a leading Israeli credit card company- I am actually a holder of their card- and it said, “Change your minus into a plus by taking our loan”!

Are they serious? Do they think we are morons that don’t understand that you can’t get out of debt by taking debt? So I actually went to their website to find out what a great deal this is. Their customer service is A1. You apply for the loan online and get an online approval as well. Then they send a messenger to you to sign on the loan document and then 3 business days later the loan is in your account. Then I looked at the small print. I mentioned my eyesight not being top notch so I took off my glasses and got really close to my computer screen, because the print is really small, and starting reading. Not surprisingly this get of debt loan will get you a ticket on the express train to bankruptcy. They are charging prime plus a risk premium which is determined by credit worthiness. It ranges from 3% up to 11.9%! Plus the Prime which they quote at 1.75%. To top it off, in bold print they say that failure to repay the loan will lead to increased interest payments, and potential Hotza L’Poal. Not where you want to end up!

Credit card not your friend

Moving from minus to plus, or getting out of debt isn’t an easy process, but it’s very doable. Dave Ramsey, Financial guru who preaches about getting out of debt is fond of quoting a verse in Proverbs (22:7) “And the borrower becomes the lender’s slave.” This is so true. Anyone who has worked with individuals who are in debt knows just how stressful the situation can be. You really become enslaved to whoever it is that you owe money to. After all, if you miss a payment you are up the creek and start hearing from debt collectors, not a great way to live.

There is a new Israeli government law which will go into effect at the beginning of the year which will limit the use of cash. This is being hailed as a great way to combat money laundering and make sure everyone pays taxes on transactions by creating a paper trail. The downside of this is that it’s forcing people to use their credit cards more and more. As someone who has worked with hundreds of people in debt and sits on the board of an organization that helps people get out of debt, I can tell you that forcing more credit card usage, will have a negative impact on consumers. I would be willing to bet that within 2 years we will start reading about increased consumer debt and that as Israeli interest rates rise, the inability of Israeli’s to pay it back.

How to get out of debt?

So how do you escape the black hole of debt? The method I like to use is to list all your debts from smallest to biggest and start attacking the smallest debt. I know that there is a school of thumb that says it makes more economic sense to pay off the highest interest debts, but I like to have some mini wins. Getting rid of debt creates confidence and motivation that it’s really possible to succeed. Start paying off those smaller debts and see how quickly you can start to turn things around.

Say no to the credit card company. Do yourself a favor and don’t take a loan to pay off your debt. You can see this website for the best loan and debt advice from attorneys. Start living within your means and pay off the debt. You will thank yourself in the long-run.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.