But the benefits to borrowing and paying interest far exceed our individual purchases. For the invention of this financial tool has significantly improved investment, the creation of enterprises, business, purchasing and the macroeconomic growth of the world since its inception eons ago. Had it not been for the ability to lend and earn interest, it is possible that our world today could more closely resemble the Middle Ages than the post industrial revolution society we enjoy today.

But unfortunately the practice of usury or lending and paying interest got off to a rough start, as many cultures considered it immoral. Usury is a term we use to refer to the practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate. One way the term can be used is in a moral sense, which is a condemnation of taking advantage of other’s misfortune. It can also be used in a legal sense where interest rates may be regulated by law. Some cultures, including Christianity in Medieval Europe and Islam in many parts of the world today, have regarded charging any interest for loans as sinful. Some of the earliest known condemnations of usury come from the Verdic texts of India. Similar condemnations are found in religious texts from Buddhism and  Judaism. And during ancient times, nations from China, Rome and Greece have outlawed loans with interest. Though, in medieval Europe, the Christian church banned the charging of interest at any rate (as well as charging a fee for the use of money, such as at a bureau de change).

But despite these moral objections, lending for profit did fortunately begin, albeit slowly. Interest, of course, is a fee paid by a borrower of assets to the owner to compensate him for the use of the assets. Today those assets are virtually always money, but perhaps starting about 7,000 years ago in the Middle East the lending of “food money” was common. Somehow they regarded interest as legitimate since acquired seeds and animals could “reproduce themselves.”

Since during the Middle Ages the Christians were forbidden to charge interest, the Jews filled the important role of lending money. The Jewish Talmud created a morally upright economic system for Jews in which loans could be converted into investments, so interest could accrue from them. This led to the Jews becoming Europe’s bankers, which at the time were called ‘money lenders.’ Counts or noblemen would lend money to the Jews, who would then lend it to the Christian peasants. Because Jews were allowed to lend and charge interest and Christians were not, this contributed to the Jewish family of Mayer Amshel Rothschild being able to create their vast banking empire starting in the 18^th century in Frankfurt. His descendents still have great wealth today.

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This Infographic  by Infoglyphs very nicely outlines the basic “Dos” and “Don’ts” of debt consolidation.

 

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Credit Report 101, an Infographic by Your Wealth Puzzle, summarizes how to build your credit score.

 

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Initially money or coins did not exist during the earliest stages of history. Trade was first based on the barter system, where a farmer, for example, would negotiate and give so much grain for a goat. It took centuries of trade before man began to accept generally the promise to pay in the future as a means for exchanging goods and services. It was perhaps starting around 1300 B.C. that Babylonians and Assyrians made loans to each other on the security of mortgages and advance deposits. By 1000 B.C. the Babylonians developed a crude form of bill of exchange where a creditor merchant could direct a debtor merchant in a distant location to pay a third party to whom the first merchant was indebted. And during the time of the Pharaohs in ancient Egypt, installment sales of real estate were being conducted.

Later on traders in lands in proximity to the Mediterranean Sea, including Phoenicia, Greece, Rome and Carthage also engaged in credit. In addition, at the beginning of the Christian era, the areas adjacent to the Roman Empire encouraged widespread trading and a broader use of credit. The practice increased once the Roman Empire fell because promissory notes and bills of exchange were widely used to reduce the dangers and difficulties of transporting and transferring coins via lawless roads and within unorganized trading areas.

During the Middle Ages (approximately A.D. 500 – 1500 A.D.), credit bills were essential to trade within the prosperous Italian city-states. Lending and borrowing, and trading on credit became common for all classes of society, including peasants, nobility, and the Pope and other prominent Church officials. An often-engaged form of credit and investment, especially in the Italian city-states, was called the sea loan, which started previously in Greek and Roman antiquity. The borrower or merchant would promise the return of the loan to the creditor only on the condition the ship carrying the goods purchased with the borrowed money safely completed its voyage. Each individual shared part of the risk of the voyage. If the voyage was successful, the creditor received a substantial bonus of twenty or thirty percent above his initial investment. If the ship was lost at sea, a common occurrence, the creditor lost everything.

Another form of credit, called the fair letter, developed during the Middle Ages at the fairs that were regularly held in the centers of the trading areas. The fair letter was a promissory note to be paid prior to the end of the fair or at the next one. It enabled underfunded merchants credit to secure goods, and time to be able to sell the goods, that were either brought to the fair or peddled elsewhere later on.

Soon the concept of paying interest on borrowed funds became much more common.

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Have you ever wondered about the manufacturing process for making plastic debit and credit cards? Originally they were made of cardboard or celluloid, with American Express introducing plastic cards in 1959. Today they consist of many plastic layers, laminated together. The cards are often first manufactured into large sheets that are subsequently cut into individual cards. The center of each card is commonly made from a plastic resin called polyvinyl chloride acetate (PVCA). This resin is then mixed with other materials, including dyes and plasticizers, to give it the desired appearance and feel. A variety of dyes and inks made especially for use with plastic, in various colors, are used in the manufacturing process.

For the swipe strip on the back, often called a magstripe, a magnetic ink is used. This ink is made by dispersing magnetic iron oxide particles in the appropriate solvents. Each magnetic particle is a tiny bar magnet. The magstripe is a film, which is very similar to a cassette tape. The magstripe can be “written” because the bar magnets can be magnetized in either a north or south pole direction. A magstripe reader understands the three tracks on the magstripe, which contains the encoded data, which is your personal banking information. If the magstripe is exposed to a magnet, such as on a refrigerator, the card’s information can be erased.

The first step in the manufacturing process is the compounding and molding of the plastic. To make the plastic for the core sheet, PVCA is combined and melted with other materials. This molten mix is then placed in the molding equipment, then flattened by passing it through rollers. The plastic sheet is then allowed to cool.

Each sheet is then engraved with text and graphics by a printing machine. Silk screening printing is often the process used. Each sheet of cards is then placed in a stamping machine, which stamps account numbers on the cards.

Now the magstripe is placed on the card, which could be done either by the process called hot stamping or magnetic ink printing. The next step is laminating both sides of the sheet, which strengthens and protects the card Then the sheet is cut into 63 individual credit or debit cards and could be embossed with additional numbers and other information. Since the magnetic particles must be on the surface to be read by a magstripe reader, the coding and decoding is done after lamination. Magnetic heads are used to code and decode the magnetic iron particles in the swipe strip.

The next generation of credit and debit cards is just beginning to be introduced in America. They will carry integrated computer chips that contain much information. It will make the cards more useful and secure.

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Have you ever wondered what all those features on credit or debit cards are? Despite us rarely leaving home with out them, their ubiquitous global presence and trillions of dollars flowing through their veins, we understand little about those features, including identification numbers, swipe strips and micro processing chips. Seeing as money no longer “makes the world go around,” but rather cards, here are some details on that thin sheet of plastic and its origins.

Starting in the 19^th century, folks exchanged goods through credit by using credit coins and charge plates as currency. The use of credit cards originated in America during the 1920s, when firms such as hotels and oil companies began issuing them to their customers. Similar to many other aspects of retailing, their use increased significantly after the 1930s depression and World War II. The first bank card, named Charg-It, began in 1946 in Brooklyn, New York. In 1950 Diners Club introduced the first universal credit card that could be used at a variety of retailers. The American Express credit card began in 1958 and in the following year was the first company to offer cardholders the option of maintaining a revolving balance. Amex cardholders were no longer required to pay off their full bills at the end of each cycle. And it was in 1959 that Amex introduced the first card made of plastic, where previously they were made of cardboard or celluloid. During this period the bank credit-card system began. This system paid the merchants quickly (something they love) by the bank crediting their accounts. The first national bank plan was called BankAmericard, which started on a statewide basis in California in 1959 by Bank of America. The system was licensed in other states starting in 1966 and was renamed Visa in 1976.

The identification numbers on credit and debit cards provide details about the cards. If the first number is three, it is a travel or entertainment card, such as American Express or Diners Club. Amex begins with 37. Carte Blanche and Diners Club start with 38. If it s four, it is Visa. Five is MasterCard and six is Discover Card.

For Amex, digits three and four indicate the type of card and the currency used. Digits five through 11 are the account number. Twelve, 13, and 14 are the card number within the account. And number 15 is a check digit, which verifies the series of numbers is legitimate.

For Visa, digits two through six are the bank number. Seven through 12, or seven though 15, are the account number. And digits 13 or 16 is a check digit.

With MasterCard, digits two and three, two through four, two through five, or two through six are the bank number. The digits after the bank number and up through digit 15 are the account number. Number 16 is a check digit.

The swipe stripe is a magnetic stripe and is often called a magstripe. The magstripe is a film comprised of iron-based magnetic particles, which is very similar to a cassette tape. The magstripe can be “written” because the bar magnets can be magnetized in either a north or south pole direction. A magstripe reader understands the three tracks on the magstripe, which contains the encoded data. If the magnetic magstripe is exposed to another magnet, such as on a refrigerator, the card’s information can be erased.

So-called “smart” cards are just beginning to be used in America, having started in France in 1984. They engage in an innovative application that involves all aspects of cryptology (secret codes). Smart cards have microprocessors built into them. These chips encrypt your personal information and make it more difficult for counterfeiters to reproduce. The user must corroborate his identity to the card each time a transaction is made, in a similar way that a PIN is used with an ATM. The enhanced memory and processing capacity of smart cards allow the cardholder to make purchases from their credit, debit or from a stored account that is re-loadable.

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1. Bring your own lunch to work and avoid even inexpensive restaurants. Also, try to patronize the lower-priced coffee vendors such as McDonald’s or Dunkin Donuts, instead of the expensive ones, including StarBucks. Be aware it is often the daily smaller expenses that quickly add up that lead to excessive debt.
2. Another way to save money is to purchase the lower-priced supermarket brand items in the grocery store. The supermarket brands are often virtually the same as the more expensive ones, including factors such as taste and vitamin content. Often the supermarket brands are secretly manufactured by the famous name companies, with  just a different label. So the quality is identical. To help determine a product’s quality, read the label. If the ingredients are the same in identical proportions, most likely you have a good product. And for non-food items, such as health products, the supermarket brands are often an even better bargain. The active ingredient in Tylenol, for example, is acetaminophen. Discount department store brand pain relievers that say they are similar to Tylenol and contain the same amount of acetaminophen are of equal quality to the famous name. The Wal-Mart brand is called Equal and is an outstanding choice.
3. Pay with cash or a debit card. Statistics indicate those who pay with credit fifteen percent more. Try to wait to purchase items until you can pay with cash or with a debit card. And if you do pay with credit, pay off the balance quickly. Those monthly interest charges add up fast.
4. Shop around for lower-priced insurance. In Massachusetts, Phil Richard Insurance offers significantly lower priced options for insuring your automobile. Often their premiums for the same coverage of automobile insurance are hundreds of dollars less annually than more well known companies. And consider raising your deductible to lower premiums.
5. Fix your car rather than buy a new one. If taxi companies can keep their cars running for more than a million miles, you could be able to keep yours going for at least 200,000. And when your car gets older, the cost for your required insurance decreases too. Another way to save is to avoid changing your oil every 3,000 miles. Contrary to what Jiffy Lube says, under normal conditions oil provides great protection for 7,500 miles. Check your owner’s manual for details. And to reduce your gasoline consumption, combine errands into one trip. In addition, when purchasing gasoline, almost all cars run better with the lower-priced regular octane, not one of the more expensive choices. Only if your car knocks should you consider purchasing a higher-octane gas. Cars using high-octane fuel do not have more power. If your car runs great on low-octane fuel, increasing the octane makes it run worse. In addition, all gas is the same. There is no benefit to buying a well-known brand, such as Mobil, instead of the lower-priced alternatives. There are only a handful of refineries. So even if the gas does not say Mobil, you may still be purchasing gasoline that Mobil manufactures. And many gas stations offer a discount if you pay in cash.

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For Massachusetts residents seeking to lower their expenses paid to financial institutions – with an improved quality of service – then consider a credit union or a small regional bank instead of one of the nationwide banking enterprises.

But before we talk about the advantages of leaving the big banks, first we must understand what a credit union is. Unlike banks, those who have accounts in the credit union are its members and owners. Credit unions, the first of which opened in Germany in the 19^th century, do not issue stock or have shareholders, although one could argue their customers are sort of their shareholders (which is the reason checking accounts in credit unions are called “share draft” accounts). Thus credit unions are nonprofits, work for their account holders and focus on their best interests. Publically traded banks focus their efforts on increasing shareholder profits. This results in credit unions often costing less than banks – and sometimes significantly less. Credit unions often offer better interest rates than banks on deposits, loans, certificates of deposit, fee structures and required minimum balances. This is because credit unions do not have as much pressure to generate earnings as banks do since their customers are the owners and beneficiaries of the profits, not shareholders. And do not worry about the insurance of your deposits. The National Credit Union Association insures your deposits at the same level as the Federal Deposit Insurance Corporation, which is $250,000 per depositor for each bank. There are also options to insure more than $250,000 at a single bank.

Small banks and credit unions offer another advantage in that they are regional and can be close to your home or work. By being smaller and close by, often the employees get to know you to a greater extent and offer more personalized and better service. You are no longer just an account number on a screen. And should you seek to improve the institution, all members (that means you) have an equal vote in important decisions made by the credit union and can even try to win election to its board of directors.

But there are disadvantages to working with a credit union. One difficulty is that by law, they must restrict membership in some way. Usually they accomplish this by requiring membership in an organization, such as a union or members living within a geographic area. Additionally, since regional banks and credit unions have limited branches, their geographic footprints are small. So when you are traveling, a branch may be unavailable. But many are connected to a network of ATMs (perhaps with fees) and offer service on the internet, which will allow you to engage in a range of services while traveling.

Another disadvantage is that smaller banks and credit unions may offer fewer options for services, such as specialized financial services, the number of credit and debit cards, or checking, savings and share draft accounts. And often their online services are limited, as they usually do not have the resources to create high-quality websites, which the large financial institutions typically do. So although it depends on your specific requirements, credit unions or small banks are often a better option than some Brobdingnagian financial institution. It can pay to shop around.

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As more Massachusetts residents were allowed to borrow from a variety of sources during the last few decades, combined with recent economic downturns, there was a corresponding increase in the number of debtors for the debt collectors. Since it is likely these companies are only paid if they are able to collect funds from you, some became ruthless and unscrupulous in their money raising efforts. In response congress enacted regulations to curb the excessive and unscrupulous practices of debt collectors. So in essence, you have a bunch of rights preventing them from excessively harassing you. Should they disregard the regulations, you may report them to the Federal Trade Commission (FTC.Gov) or your own state’s attorney general.

According to the FTC website, debt collectors are allowed to call you, but are prohibited from “using abusive, unfair or deceptive practices to collect from you,” including false statements. They are also prohibited from calling before 8:00 a.m. or after 9:00 p.m., unless you authorize it. In addition, they cannot repeatedly use the phone as a means of annoyance. They cannot call you at work if they are told, either orally or in writing, that you are unpermitted to receive calls there. They must also identify themselves as a debt collector at the start of the conversation and generally cannot discuss your debt with other individuals.

Another regulation regarding debt collectors is that if an attorney is representing you, they must only communicate with him. Should you not have an attorney, they may communicate with other people, but only discover your whereabouts, such as your address, phone number or place of work. Often they are prohibited from communicating with third parties more than once.

To stop them from continually calling you, you can send them a cease-and-desist letter asking them to stop. Once they receive the letter, they cannot call you again, with two exceptions: they may call you once more to tell you they will stop calling or to inform you they are going to take a specific action, such as filing a suit. To send the cease-and-desist letter, you may consider using a template similar to the following:

Date                                                                                                                                                              Your Name
Address
City, State, Zip Code
Phone #
Account #

Debt Collector’s Name
Address
City, State Zip

SUBJECT: CEASE-AND-DESIST LETTER FOR ACCOUNT #

To whom it may concern:

Pursuant to my rights under federal debt collection laws, I am requesting that you cease-and-desist all communication with me, my family and friends, in relation to this and all other alleged debts you claim I owe.

You are hereby notified that if you do not comply with this request, I will immediately file a complaint with the Federal Trade Commission and the (your state here) Attorney General’s office. Civil and criminal claims will be pursued.

Sincerely,
Your Name

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