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Why Don't People Manage Debt Better?

blogs.scientificamerican.com

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Re: Why Don't People Manage Debt Better?

#221

Post by Symbiote »

maxsilver wrote: post #106
infinite8s wrote: post #98

Earlier quoted context omitted.

I don't understand these reward schemes. Surely they are being funded by higher merchant fees, which means merchants charge more, which just means that the rewards are a transfer scheme between people who pay by cash/unrewarded cards and those with rewards cards.

There's a lot of truth to that (cash paying customers pay the same, even though the cost to serve them is less). But unrewarded cards aren't really any different. Most merchants still have to pay the same high fee for them. Since the bank/processor is going to take the maximum amount of money they can regardless, and most merchants will have to pay that full fee regardless, you might as well use a rewards card over a…

(In the UK)

American Express cards offer the best rewards, but the cost to the merchant is much greater. Many shops or restaurants don't accept AmEx, and sometimes those that do will say they prefer you to use an alternative card.

But within one network, I think it's correct that the cost is the same regardless of the card's promotion.

Re: Why Don't People Manage Debt Better?

#222

Post by [deleted] »

imgabe wrote: post #17

Anyone at a point where they are making monthly payments on multiple credit cards has already lost the debt game. People don't manage debt better because they have been marketed to and taught to use debt completely inappropriately. Debt should be used to purchase an asset that will appreciate or otherwise provide an income in excess of the interest payment on the debt. Full stop. That is how businesses use debt and t…

[deleted]

Re: Why Don't People Manage Debt Better?

#223

Post by notlefthanded »

icebraining wrote: post #184
mtgx wrote: post #161

Earlier quoted context omitted.

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?

The video is by Ray Dalio, founder of Bridgewater, and it states that it's just his personal mental framework to understanding the economy; not claiming gospel or anything. Either way, he's kind of a big deal.

Re: Why Don't People Manage Debt Better?

#224

Post by kamaal »

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…

>>why do people buy things they can't afford and most often don't need, putting themselves in this position?

Irrationality. They don't think the situation through.

"Do you know that my personal crusade in life (in the philosophical sense) is not merely to fight collectivism, nor to fight altruism? These are only consequences, effects, not causes. I am out after the real cause, the real root of evil on earth — the irrational." - Ayn Rand

Bad things happen to people when they decide to put their feelings above rational evidence and thought.

Re: Why Don't People Manage Debt Better?

#225

Post by joverholt »

kdamken wrote: post #200
Ocerge wrote: post #143

Earlier quoted context omitted.

Absolutely. I fully recognize my $2.50 americano every morning could be a couple of cups of free office coffee, but I look forward to it every single day. I also drive a 10-year-old but reliable car, so I don't have any huge monthly expenditures outside of rent and my $150 student loan payment. I'll take the $100 or so hit every month in exchange for me starting my mornings on a positive note. It's not going to posit…

Playing devils advocate here: you're spending $1200 a year on coffee. With that money you could not only buy a really nice coffee machine and make it yourself every morning, but also have a bunch of money leftover to put towards your loans, invest, put towards a nice vacation, etc. The idea is that those small daily expenses tend to add up, and there may be a lot more of them than you realized.

Also, buy a coffee roaster and roast your own beans. There are lots of ways to get started on the cheap (popcorn air roaster), and unroasted coffee is around $5-$6 a pound. It's a very rewarding hobby. http://sweetmarias.com is a great place to get started.

Re: Why Don't People Manage Debt Better?

#226

Post by kamaal »

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.

Any investment advice is fairly useless without some money to begin with, investing is the art of bootstrapping.

Re: Why Don't People Manage Debt Better?

#227

Post by ethbro »

pessimizer wrote: post #180
tamana wrote: post #128

Earlier quoted context omitted.

He's saying that you could make $7 by investing your cash for 30days before paying the charge card.

You could lose a lot more than $7 by being a day late, and labor in maintaining a credit card has to be worth more than $7 a month.

Ceteris paribus, the time value of money is a valid consideration. Not sure you read through the entire link and thought about how it applies to both sides of a lending transaction. You may have reasons to disregard it personally, but in an equal comparison being able to spend $X and paying $X Y days from now is strictly preferable to paying $X today.

It's essentially the bedrock of the modern financial system.

Re: Why Don't People Manage Debt Better?

#228

Post by tomjen3 »

rdrey wrote: post #173
dazc wrote: post #99

Earlier quoted context omitted.

> Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. If you don't have $1200 for a TV you shouldn't be buying it. It's not as if you can't buy a perfectly reasonable TV for much less is it?

Replace the word TV with 'first household car'.

No.

Tv don't enable you to get a better job/keep your current. If you want the argument to mean anything then you have to trade like for like. A nice couch will last years and it is still a frivolous consumer spending object. Is it worth it to pay ~80 usd to have the couch a year earlier?

Re: Why Don't People Manage Debt Better?

#229

Post by Spooky23 »

pessimizer wrote: post #219
Retric wrote: post #209

Earlier quoted context omitted.

Having x credit limit costs vastly less than x cash in a checking account.

What I meant is that if you have a lot of things scheduled to be withdrawn from your bank account, and some sort of fraud or double charging happens, chaos ensues (as above.) If you had a bunch of things timed to be taken from a charge account, and you exceeded your credit limit because some sort of fraud or double charging happens, identical chaos would ensue. edit: and there's certainly not a vast difference in car…

That makes more sense.

Personally, I don't auto-pay everything. Stuff like sales tax, utilities (power, gas, water, cable), insurance, parking, car payments that isn't variable.

Re: Why Don't People Manage Debt Better?

#230

Post by kamaal »

charlesdm wrote: post #101
kdamken wrote: post #90

Earlier quoted context omitted.

I'd disagree on that last part - I'd say that if you're not making a crazy salary his advice is even more valuable. Most people spend an obscene amount of money on things they don't actually really need. Some classic examples: A $3 coffee everyday adds up to about $90 a month, when you can usually just drink free coffee from your office or buy some cheap pre-ground stuff. Spending $5-6 for lunch each day at work can…

This is the best way to get depressed. It's always significantly easier to negotiate a $1k raise than it is to reduce your spending on basic stuff by $1k. Focus on earning more, not saving (on useless expenses).

>>This is the best way to get depressed. It's always significantly easier to negotiate a $1k raise than it is to reduce your spending on basic stuff by $1k.

Ideally. But in reality with bad habits you will spend that extra $1K you started earning.

>>Focus on earning more, not saving (on useless expenses).

Both. Without discipline its all useless. Why else do you think so many athletes or lottery winners lose those millions?

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