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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?

#291

Post by repsilat »

heywire wrote: post #271
craigds wrote: post #253

Earlier quoted context omitted.

I think it's an American thing. In NZ it's pretty rare to buy a new car, far more common to get a 10-15 year old one for $5-10K. Paying cash is normal

Well, someone has to be buying the new cars, or else there wouldn't be any used cars.

I don't know if it's still the case, but New Zealand used to import a lot of Japanese second hand cars. Cheap, reliable, fuel-efficient and left hand drive.

Less common in Australia because they have (had?) a domestic market to protect -- import tariffs made it less attractive.

Re: Why Don't People Manage Debt Better?

#292

Post by whitegrape »

mafribe wrote: post #107
yummyfajitas wrote: post #87

Earlier quoted context omitted.

My utility from eating (in one time period) $800 worth of food is less than 2 x utility of eating $400 worth of food. Doubling my consumption doesn't double my happiness. Concavity is a way of formalizing this intuition; it means, roughly speaking, that f(2x) Econ uses log(x) as a simple model, but the same idea would apply to any convex function albeit with different arithmetic.

Why are you sure that for you, $800 worth of food is less than 2 x utility of eating $400 worth of food? How would you convince somebody who thinks you are wrong (e.g. deluding yourself, or not telling the truth)?

It doesn't seem like it would apply for all instances and combinations of food. For me, I've had a $90 porterhouse, which was truly delicious, and was indeed worth more (not less) than if I had gotten one $45 alternative cut to eat then and a second one to take home. But extrapolated out for other food / time scales / diet preferences, buying two 5 pound packs of bacon for $40 gives me a lot more utility than $80 worth of pepperoni bits which are quite a bit more expensive per pound but very convenient as a ready-to-eat snack.

Re: Why Don't People Manage Debt Better?

#293

Post by zeveb »

tunesmith wrote: post #260
douche wrote: post #61

Earlier quoted context omitted.

It's pretty numb to use debit cards as opposed to credit cards, for various reasons. A.) You can't over-draw a credit card, and get hit with overage fees or bounced-check insurance, or all the other things banks do - particularly with the slightly nefarious way they often choose to order your transactions when they close their books. Particularly troublesome with businesses that put in a hold on your card, then charg…

One problem: Debit cards are automatically paid down at zero all the time. None of the credit cards I've ever had have made it easy to automatically pay down to zero. You have to do it manually - you remember most of the time, then you're a bit late one month, and it's enraging. Credit card companies have every reason to make this difficult.

> None of the credit cards I've ever had have made it easy to automatically pay down to zero. You have to do it manually

My bank's electronic bill pay automatically pays my full credit card bill, every month, without fail. It's been doing that for at least a decade IIRC. Is this that unusual?

Re: Why Don't People Manage Debt Better?

#294

Post by Domenic_S »

blktiger wrote: post #277
epimetheus wrote: post #158

Earlier quoted context omitted.

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.

Keep in mind that 0% interest isn't the same as free money. Usually a 0% interest deal comes with "finance charges".

I've never seen that. What I have seen is that if you don't pay the card off completely in 12 months, they'll assess interest going back to the inception of the account, so if you make a 0% deal you've got to be sure you can pay it off in the time allotted.

Re: Why Don't People Manage Debt Better?

#295

Post by soperj »

epimetheus wrote: post #272
soperj wrote: post #238

Earlier quoted context omitted.

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.

That's a good point. I'm terrible at this kind of negotiation though, do you usually come in with a particular price or do they have a set amount if it's cash? I think I'd like to get better at negotiating, I usually end up paying full price for a car because of my lack of such skill.

Yeah as the other person said, you definitely don't need to be a shark, ask how much it would be if you were paying cash. Also you can always walk away from a purchase and say you'll think about it. I got a call the next day where they took $500 off of bedroom furniture when I actually was just thinking about my other options. Cars especially though you should be asking for discounts, I worked at a car dealership (in detailing, i couldn't be a salesman) and they are horrible. Also they work on purely commission so it's in their best interest to give you a deal since if they don't close they don't make anything. Walk away from a car dealership as many times as you have to... really just take your time.

Re: Why Don't People Manage Debt Better?

#296

Post by nimblegorilla »

dragontamer wrote: post #175
nmcfarl wrote: post #153

Earlier quoted context omitted.

There’s a ton of comments on this article that I think are much more nutso. But this is the comment I’m going to reply to, cause people who keep emergency funds are probably open changing their mind via reason. Touching your 6 months emergency expenses fund is completely against the point. The reason you have this cash is for out of the blue, hit by bus kind of events. You need it when you least expect it If you take…

Well, its the reality of the situation. A typial 6-month Emergency fund is somewhere on the order of $15k, depending on where you live. This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts) http://www.fool.com/investing/general/2015/05/17/americans-a... If you manage to have $15k, and you are making a big purchase, do use it before you start using a cr…

People able to save 15k of cash usually have decent credit ratings and can get 0% financing for most things.

Re: Why Don't People Manage Debt Better?

#297

Post by spdionis »

It's interesting to think that somehow I am better off than most americans living in a third qorld country even if most have at least 5x my income just because I don't have any debt.

We don't have credit cards with higher than 0 credit limit here. Those credit lines sound very generous to me.

Re: Why Don't People Manage Debt Better?

#298

Post by barrkel »

Jtsummers wrote: post #202
barrkel wrote: post #189

Earlier quoted context omitted.

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 produci…

You asked: Why wouldn't the lender buy the asset directly? The reason is: They don't need it. They want income, not assets.

Lenders buy income streams; income streams are assets, from the lender's perspective.

Re: Why Don't People Manage Debt Better?

#300

Post by m1n1 »

Here's another debt choice: given a mortgage with over 20 years left on the term and a sudden cash windfall of, say, 20% of the remaining principal, and assuming there's nothing better to do with the money than applying it to the mortgage would you rather (1) pay off some principal now thus effectively shortening the term but allowing the monthly bill to stay constant or (2) re-cast the loan by paying off some principal, still have 20 years left of payments, but each monthly bill is now smaller? ... Personally I'd opt for (2) because it immediately gives more breathing room especially if something bad were to happen. Going with (1) may save more money ultimately, but doesn't reduce the financial risk until the final payment is made.
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