Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Don't People Manage Debt Better?

blogs.scientificamerican.com

Post reply on HN
Print view View original

181–190 of 369 posts

Re: Why Don't People Manage Debt Better?

#181

Post by Jtsummers »

Wonderdonkey wrote: post #120

Paying off small debts first isn't just a "natural tendency." Consumer advice sites actually encourage this as a motivational strategy. Every single one of them. Having read this, now I question the objectivity of those types of advice pieces. For example, here's a story on US News that covers three strategies for paying off credit card debt. The first tip is to pay off higher interest cards. But the second is to pay…

Not all articles on this are so clear, but at least this US News one is:

The optimal (highest rate first) approach is a slow slog that can be discouraging and result in relapses. The sub-optimal (smallest debt first) approach shows progress much faster, and if paired with the snowball approach (as debts are paid off, freed cash goes to the next debt), it creates the illusion (until high value debts are all that remain) of fast progress. It's psychologically easier to stick with.

> But the second is to pay off the smallest debts first and pay the minimum on the other cards. What?!?

Again, this article in particular, but the actual recommendation is to pay at least the minimum, which is not the same.

Re: Why Don't People Manage Debt Better?

#182

Post by pessimizer »

Spooky23 wrote: post #172
pessimizer wrote: post #102

Earlier quoted context omitted.

A) Opt out of "overage fees and bounced-check insurance" which would be the problem here, not debit cards. Keep track of your own finances. B) Don't live check to check. Keep track of your own finances. C) And if you fail to do that once (because you're probably living check to check), you've nullified any free benefit you ever received. D) Horseshit. I had my card stolen by the Target breach, there were charges on i…

It's always better to have problems with somebody else's money when your contract scopes your liability narrowly. Even if I follow your advice and do A, B and C, D is still a problem that I need to deal with. Case in point. I had a two-week hotel stay and facility booking at a resort on my AMEX. The hotel fucked up and double-charged me for the event -- to the tune of $20,000. Due to their obtuse bureaucracy and over…

Am I wrong, or wouldn't exceeding your credit limit have exactly the same effect?

Re: Why Don't People Manage Debt Better?

#183

Post by orionblastar »

I used to manage debt and save money until I got too sick to work and ended up on disability. NO my wife and son and I live paycheck to paycheck and had to file bankruptcy chapter 13 due to medical debt. If I didn't get sick I'd be managing my debt better. Even with health insurance you can still rack up a lot of debt and go over your head.

I worry that one day we might lose the house and end up homeless. I am not medically cleared to work, and trying to find work as a freelancer when you are disabled is really hard to do. Can't get a 9 to 5 job either. I have a mental illness and medicine that threats it that makes me drowsy and hard to focus and concentrate. I can't even drive a car anymore.

Re: Why Don't People Manage Debt Better?

#184

Post by icebraining »

mtgx wrote: post #161
bradleyjg wrote: post #58

Earlier quoted context omitted.

I don't think such an absolute position is warranted. It's true that saving up for a big purchase will end up costing you less money than borrowing to pay for it and paying it back. But you will have the item purchased for less time. Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January…

This video on economic theory basically says that it's credit that causes booms and busts, and it's especially bad when credit is not used for investments because it inevitably creates a situation in the future where millions of people at once will have less money to spend, thus creating a bust: https://www.youtube.com/watch?v=PHe0bXAIuk0

Oh, well, if an Youtube video says so, it must be true.

Does it show any evidence for that theory?

Re: Why Don't People Manage Debt Better?

#185

Post by forgetsusername »

jonknee wrote: post #77
forgetsusername wrote: post #26

Earlier quoted context omitted.

> Businesses use debt in all sorts of ways, they certainly don't limit it to buying assets. A common use recently is to fund share buybacks You don't think buying a stake in a successful company (in this case one that happens to be your own) is buying an asset? The mechanations are slightly different, but you're still buying shares. An effect is rising EPS (due to retired shares), but that isn't the purpose.

Not at all, it's a giveaway to executives (who get bonuses based on EPS) and long term shareholders. Some firms also borrow money to fund a dividend which is just a literal giveaway.

>Not at all, it's a giveaway to executives (who get bonuses based on EPS) and long term shareholders.

Putting aside the executive giveaway (because I have a hard time believing that there are executive bonuses so intertwined with EPS that the company can just burn money on buybacks to increase that bonus without any external fuss or anyone questioning why)...

...who or what else matters beyond the shareholders?

Share buybacks aren't a scam. They exist as a method to return capital to shareholders and can be smart or not depending on a variety of financial circumstances. Just like every other financial decision.

http://aswathdamodaran.blogspot.ca/2014/09/stock-buybacks-th...

Re: Why Don't People Manage Debt Better?

#186

Post by hsitz »

RUG3Y wrote: post #65
kdamken wrote: post #42

Better question: why do people buy things they can't afford and most often don't need, putting themselves in this position? So many of my peers don't make a lot of money, but then still go out and buy a new or newish/used car and put themselves on a multiyear payment plan. "Oh but it's only 200 a month, I can swing that". Repeat for like 3-4 other things and suddenly they're always complaining they have no money and…

Mr. Money Mustache is pretty awesome but the guy had a very highly paid job that allowed him to retire early. Some of us are fiscally responsible and don't make all that much cash - I find that a lot of his advice is fairly useless unless you have some money to begin with.

"I find that a lot of his advice is fairly useless unless you have some money to begin with."

The bulk of Money Mustache advice is about avoiding paying money for stuff that doesn't really improve your life. This advice is actually more important for people who don't have money. As Mr. Money Mustache points out, most things we buy are "luxuries", we don't need them. And adding a little hardship to our lives, avoiding needless luxuries, actually improves our happiness. See, e.g., http://www.mrmoneymustache.com/2013/08/29/luxury-is-just-ano... --or-- http://www.mrmoneymustache.com/2012/03/07/frugality-the-new-...

In other words, "what the hell is someone doing buying a $1,200 tv on credit?!" What's wrong with a $400 tv? Or a $200 tv? Or no tv?

Re: Why Don't People Manage Debt Better?

#187

Post by bufordsharkley »

ethbro wrote: post #111
ac29 wrote: post #95

Earlier quoted context omitted.

> Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January 1st next year you'll have a new TV and $2.75. In scenario 2, you put $1200 on a credit card with a 10% APR. You pay $100 each month towards the credit card bill. As of January 1st next year you have a TV you've been watching for a y…

> Run the math again at 18% APR ($133 in interest over the 14-month payoff period) or even 24% ($185 in interest over the 14-month payoff period), and you quickly see just how much premium it costs to get that TV a year earlier. I feel like the issue isn't just the TV. It's that it's the TV, plus the next thing, plus the next thing. Or in other words, tiers of debt usage from best to worse: (1) completely avoid payin…

> I have met incredibly educated people that are still ignorant about how credit cards/interest charges work and only internalized "Never use credit cards!" advice.

I feel that on a rational level, I understand the credit card companies' game, but more than that, I fear them and their power and intelligence.

Sure, I'd like to think I'm smart enough not to be tricked by them, but it's safer to avoid the deal with the devil altogether.

Re: Why Don't People Manage Debt Better?

#188

Post by pessimizer »

pessimizer wrote: post #118
douche wrote: post #116

Earlier quoted context omitted.

> D) Horseshit. I had my card stolen by the Target breach, there were charges on it all over Europe, and within a week I had every penny back. Let's say that week happens to be the one when your rent/mortgage is due, your car payment is due, your student loan payment is due, etc. It doesn't matter that the money goes back into your checking account eventually , if it's not there when it needs to be, you get hit with…

I don't live check to check, and I don't keep all of my cash in a single checking account. edit: I guess keeping cash surplus to my immediate needs in a savings account is opting out?

Maybe I'm not expressing myself directly enough: when you overdraw your checking account, it's the latest mistake of a long series of mistakes. If having a paycheck delayed for a week causes you to have a negative net worth, you should reduce your expenses or get a better job.

Re: Why Don't People Manage Debt Better?

#189

Post by barrkel »

Jtsummers wrote: post #162
barrkel wrote: post #147

Earlier quoted context omitted.

Debt is useful to change the time between income and expenses; it solves a cash-flow problem. That's the real key: treat it as a time adjustment in flow, and not as a stock. It's not something you can dip into, as it were; it's something you use to move consumption closer in time, in return for reducing potential consumption in the future. If you're using it to buy an asset that appreciates more than the interest on…

> If you're using it to buy an asset that appreciates more than the interest on the debt, what makes you think that you're a better judge of asset prices than the people lending you the money? Why wouldn't they just buy the asset directly, and cut out the middleman? Because it's not their (core) competency or they don't want the risk. I could start my own company printing indie games. But I have no connections in the…

Someone working in a company printing (?) indie games isn't an asset, though (except in the accounting sense of the lender, as a stream of repayments; but that's not the perspective that's under discussion - individuals borrowing, not lenders lending).

Point being my rationale was slightly different; it includes more things - it's more general - and it's a bit more negative on the idea of simply buying a rent producing or appreciating asset.

Re: Why Don't People Manage Debt Better?

#190

Post by TeMPOraL »

nisse72 wrote: post #170
grecy wrote: post #112

Earlier quoted context omitted.

In scenario 1, when you realize that paying so much money for a TV is nonsense, you can spend that money on something else, and/or stop going to work, or reduce work hours. In scenario 2, you're stuck going to work for the entire 12 months to pay off a TV that will be obsolete by the time you finish paying for it. Scenario 2 robs you of your choices, because you're making a promise of future labor. Scenario 1 leaves…

Since when does a television become "obsolete" after a year? Or even after 5 years? Just because it doesn't have built-in support for Netflix or whatever the latest thing is? This is the sort of idea that lures people into overspending in the first place. For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television. Yes it's fatter than those newfangled flat things,…

> For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television.

That's the key point. Your TV is fine because it's old. New ones are built with planned and unplanned obsolescence (unplanned is when your "smart" TV loses half of its functionality because some service goes off-line or even changes their URL or something).

Post reply on HN