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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?

#231

Post by modfodder »

TeMPOraL wrote: post #190
nisse72 wrote: post #170

Earlier quoted context omitted.

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).

There still isn't a TV on the market (that I know of) that is obsolete after a year, not even five years. As long as the inputs (hdmi, dvi, RCA) work then the TV is not obsolete. It may not have the newest features (4k, "smart" connectivity) but it is every bit as usable (and many of the smart features can be added with a ROKU, Apple TV or the like).

Video and Films are my business and my TV is a nearly 5 year old LG plasma that still performs great. And I only bought it because my ex kept the Panasonic plasma after the break-up or I'd probably be using an 8 year old TV.

Are there any reports of smart TVs not working completely (inputs stop working) because the "smart" connected features stop working?

Re: Why Don't People Manage Debt Better?

#232

Post by danjayh »

I find myself a bit bemused that the article specifically mentions student debt as an example of something that people can refinance but don't. I hadn't ever had any student debt until marriage, but since then (and until recently) my wife and I have been working through a great deal of it together.

As someone who has worked through paying down a large amount of student debt, I can tell you that student debt is very difficult to refinance. Our student debt balance was much higher than the median, but I believe that our experience with refinancing was very typical: we couldn't refinance our student debt at an interest rate that was even remotely attractive.

We reacted to the dearth of refinancing options by deciding to eliminate our debt as quickly as possible, and when we first got married we dumped about $35k into debt reduction. We chose to go after the high interest rate first, which was also the largest loan. Had we gone after the smallest loans first we could have paid off several of them instead of merely making a (significant) dent in the higher rate loans, and this is where the psychology comes in.

Dumping a ton of money into a debt without changing anything but your principle balance is discouraging. It was for us, and it is for nearly everyone else too. Personal finance counselors like Dave Ramsey actually instruct people to intentionally pursue the smallest debts first because the feeling of momentum helps most people to maintain dedication to getting out of debt, which in many cases will more than offset the difference in interest rates (paying down faster due to more resolve = less interest overall). We sold stuff and skimped like crazy people and we killed our debt, but it's a very common thing for people to run out of determination before they run out of debt. Since that's such a common problem, I'd say that it's not necessarily a bad thing that people pay debt in a financially non-optimal way if the method is at least psychologically optimized.

Re: Why Don't People Manage Debt Better?

#233

Post by fluxquanta »

maxxxxx wrote: post #139
tamana wrote: post #136

Earlier quoted context omitted.

People won't accept gifts. Give a "loan" but treat it like a gift --never mention the balance ask for the repayments.

From my experience even that doesn't work. People will feel guilty about not paying and resent you even if you stay quiet. But they also won't pay. At least that's my experience with two members of family and one business partner.

Agreed. I have a sister who every year around Christmas, like clockwork, begs for a "loan" with the promise of "I'll pay you back with my tax refund". Many years and thousands of dollars later, in 2015 I finally said no. We no longer speak to each other, and I was publicly (via Facebook) labeled the ungrateful brother who only thinks of himself.

Re: Why Don't People Manage Debt Better?

#234

Post by Retric »

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…

Negative interest rates are a non issue if you have any debt, just pay down your house etc faster.

The problem is errors are random so your 'solution' is to keep huge amounts of cash in your checking account to deal with random error.

But, if I max a CC I would still have the cash in my checking account to pay other bills. If I don't have a CC and my checking account is empty I am going to have issues paying rent etc.

PS: Think of a CC as a financial firewall. You still need the cash to pay your bills, but keeping a redundant CC with an unused 15k credit limit is cheap.

Re: Why Don't People Manage Debt Better?

#235

Post by JauntTrooper »

infinite8s wrote: post #98
maxsilver wrote: post #86

Earlier quoted context omitted.

American Express has a card "Blue Cash Preferred". You get 6% back on Groceries (up to $6k/yr), 3% back on gas, and the card has a $75 annual fee. If you only use the card to spend $100/week on Groceries, you get $312 in cashback rewards. Subtract the $75/yr fee, and Amex paid you $237 to use their card that year. (Amex isn't the only card like this -- there's lots from MasterCard and Visa as well. This card in parti…

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.

Merchants can't always charge more. The amount of the charge that's passed on to the consumer depends on the good/service being sold and its price elasticity of demand.

Re: Why Don't People Manage Debt Better?

#236

Post by duderific »

jonesb6 wrote: post #164

We have an entire generation growing up with the idea that large debt is natural and acceptable. I've had countless friends go down $10,000 in debt and say "what's $20,000 in debt really?" and it's a vicious cycle from there.

Yep - and they probably got there eating out a lot, opening a tab at the bar, buying the latest and greatest electronics, traveling etc. There is no concept of living within your means.

Re: Why Don't People Manage Debt Better?

#237

Post by dragontamer »

GVIrish wrote: post #155
dragontamer wrote: post #91

Earlier quoted context omitted.

Now suppose you lose your job in Month 10. The TV-less person will continue not having a TV, and use those funds for emergency day-to-day living expenses as he (or she) gets his life back in order. You can even dip into your credit card credit line for an emergency. But the person who bought the TV on interest is in debt, has less credit to live off of, and only a TV to show for it. ----------- In either case, saving…

I wouldn't use that emergency fund money for something like a TV, because it's not really a necessity. Dipping into the emergency fund for indulgences leads to a depleted emergency fund. Now if your heater breaks and requires replacement, that might be a reason to tap into savings.

I think that's a valid point. TV is quite a luxury item, I spent more than half of last year building up my emergency fund without a TV or couch (still missing couch: I'll get that soon).

But I recognize that I personally like to live on low expenses, lower than other people. For the spenders out there, even just saving up enough for an emergency fund is a big deal.

The important thing is that piles of money are a tool, as is credit (including credit cards). Use the tools as you see fit, but there are definitely "best practices". If you have a large pile of money (ex: Emergency Fund), it makes more sense to buy using that money rather than to dip into credit.

After all, you could always use your credit card in an emergency. Spending available cash first will be cheaper in the long run (as long as your spending habits remain in check)

Re: Why Don't People Manage Debt Better?

#238

Post by soperj »

epimetheus wrote: post #158
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…

Actually, a lot of places constantly run "Zero Interest If Paid Off In 12 Months" deals all the time. Lowes, Furniture stores, and even some Credit cards. We've paid off Couches, A refrigerator, a new Sewer Drain, and several other things (a nice Kitchen Table most recently) this way. It's not as good as saving for it, and getting a few dollars of interest, but that's a marginal gain anyway.

Except you can get discounts if you pay in cash. I'd never pay more than 60% of what they're asking for a couch.

Re: Why Don't People Manage Debt Better?

#239

Post by danjayh »

debtsnowball wrote: post #85
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…

Consumerism and marketing are powerful things. I know all about the problems debt creates, how it can get out of hand. I've read Dave Ramsey's books and listen to his podcasts. I am very well versed in what it takes to be financially successful. ... But it only takes one moment of weakness to see a new car, fall in love with it, be convinced your life will be better with it and the next thing you know you've committe…

Protip: The note 4 has a wonderful camera and quite often goes on bargain basement sales. If you're OK with used, you can pick them up for a song on Swappa. Personally I wanted a note 4 since it came out, and I waited until after the Note 5 was out to buy it. I love it just as much as if I'd bought it when it was fresh (plus the new phones don't have removable batteries or microSD, and who wants that?)

Re: Why Don't People Manage Debt Better?

#240

Post by forgetsusername »

padobson wrote: post #214
evunveot wrote: post #194

Earlier quoted context omitted.

The Amazon Prime Store Card is an example. You can choose per transaction either 5% cash back or 6/12 (sometimes 24) months interest-free financing, depending on the size of the purchase. (You can only use the card at Amazon, though, and there's the Prime membership fee.) I've bought several plumbing fixtures and a laptop without paying any interest this way.

This is effectively how the low fed-funds rate trickles down to the consumer - there are 0% financing opportunities everywhere. Ultimately, these deals are subsidized by people who get charged with massive deferred interest payments because they don't plan properly, and that sucks for them, but as you say, it's a great way to start experiencing the benefits of a purchase instantly. Even better is to use the financing…

>This is effectively how the low fed-funds rate trickles down to the consumer - there are 0% financing opportunities everywhere.

Indeed, and it's important to point this out to those who insist "Average Joe" doesn't benefit.

Three of the largest investments people will make in their lives are 1) their home, 2) their education and 3) their vehicle. All 3 are generally financed, and financing rates are at historic lows.

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