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

311–320 of 369 posts

Re: Why Don't People Manage Debt Better?

#311

Post by wcarss »

Sir_Substance wrote: post #305
anexprogrammer wrote: post #282

Earlier quoted context omitted.

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not…

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either! I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :) However, what's your experience with taking out that home loan? I'm worried that I might one…

You've basically swung too far to the other side of the spectrum, and you will be penalized for not having a credit history if you ever seek a large loan.

If you consider your credit card to be a no-fee (or low-fee) payment mechanism that aggregates your monthly expenditures into a single bill, you can have savings theoretically (though in reality, probably not usefully) appreciating over the course of the month in a bank account, and then pay the bill for your expenditures at the end.

This simple money management technique reduces fees paid for ATM access, allows your assets to maximally appreciate, and builds up a very solid credit history. Credit Cards and Lines of Credit aren't evil; they're useful, but they're not hard to use in a manner that will bite you.

Re: Why Don't People Manage Debt Better?

#312

Post by superuser2 »

Sir_Substance wrote: post #305
anexprogrammer wrote: post #282

Earlier quoted context omitted.

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not…

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either! I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :) However, what's your experience with taking out that home loan? I'm worried that I might one…

>but by golly does playing that game sit ill with me.

Why? They are giving you free money for your trouble (1.5-2% back, a proportion of the transaction fee they've effectively baked into the price of all consumer products) and offloading the risk of having your bank account drained through a debit card or getting mugged for your cash.

Re: Why Don't People Manage Debt Better?

#313

Post by Swizec »

Sir_Substance wrote: post #305
anexprogrammer wrote: post #282

Earlier quoted context omitted.

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not…

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either! I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :) However, what's your experience with taking out that home loan? I'm worried that I might one…

I have a credit card that needs to be paid off in full every month. Zero-interest 1-month loans are very handy to iron out any behavior or income fluctuations.

Re: Why Don't People Manage Debt Better?

#314

Post by maxxxxx »

forgetsusername wrote: post #240
padobson wrote: post #214

Earlier quoted context omitted.

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 low…

The prices of 1) and 2) are at historic highs though. Even if the interest rate is low you still have a lot of debt to pay off.

Re: Why Don't People Manage Debt Better?

#315

Post by superuser2 »

bufordsharkley wrote: post #187
ethbro wrote: post #111

Earlier quoted context omitted.

> 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…

Unless you are at a very small bank/credit union (and sometimes not even then) your bank probably is a credit card company.

Re: Why Don't People Manage Debt Better?

#316

Post by rconti »

The more time a person spends analyzing their debts and trying to find the optimal repayment or refinancing strategy also brings the unpleasant debt to the foreground. I think people prefer to pretend that it's not even there. It hurts them financially in the long run, but avoids confronting a painful reality.

When I got out of college, I had some debts to repay (car loan, credit cards, student loans). Someone who I thought was a friend ended up bringing her manager with her to hard sell me on starting a retirement account with them.

Partially because I was stubborn and annoyed at being tricked into the sales call, I simply stonewalled for 3 painful hours. I tried to be nice (I suppose I am too nice), so I didn't kick them out. I simply kept insisting that I was better off putting $0 into investments until my higher interest debts were paid off. They pulled out a bunch of lines about "starting a pattern of saving" and so on, that are definitely correct on some level, but I stood by the math.

Eventually they got the memo, and left. Once my debts were paid off, I started putting money towards my 401k and short term savings. Every time I've gotten a raise or a big bump from switching jobs over the past 10 years, virtually every additional dime has gone into savings.

Have good principles. Then stick by your principles.

Re: Why Don't People Manage Debt Better?

#317

Post by sokoloff »

Sir_Substance wrote: post #305
anexprogrammer wrote: post #282

Earlier quoted context omitted.

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not…

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either! I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :) However, what's your experience with taking out that home loan? I'm worried that I might one…

Get and use a credit card (or two), but pay it off every month. Every year or so, ask them to raise the credit limit. You'll be in fine shape when it comes to getting a mortgage.

"Not paying interest on any card" is desirable. "Not having any card" works against you in your situation.

Re: Why Don't People Manage Debt Better?

#318

Post by carlob »

yummyfajitas wrote: post #220
carlob wrote: post #103

Earlier quoted context omitted.

True, but still how many broke musicians and actors should be considering this month's zero income a fluctuation and get into credit card debt and how many should just be more conservative with their spending?

If you look at my example, the person with peak income of $10 spent a bit under $5.5/month. Both time periods were "fluctuations" from his average income of $5.5.

Yeah but the first one was 1 the second was 10, not the other way around. After one month at 1 how do you know you're going to average out at 5.5?

Re: Why Don't People Manage Debt Better?

#319

Post by ASinclair »

shoover wrote: post #245
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…

As a long time mint.com user, I hadn't checked out YNAB before. Reading some of their info, I see I do most of the same disciplines, but they are really hardcore about the budget. One thing that stuck out is in their Simplify [1] article, they recommend not having multiple savings accounts for medium to long term savings goals because that's complicated and the budget takes care of it in a simpler way. In Mint it wou…

All I can say is YNAB worked well for me. Though it may only work for a certain type of person. It's one of those things where you really need to take them up on the free trial to see if it works for you.

The way I see Mint vs YNAB is: Mint is reactive while YNAB is proactive.

Re: Why Don't People Manage Debt Better?

#320

Post by anexprogrammer »

Sir_Substance wrote: post #305
anexprogrammer wrote: post #282

Earlier quoted context omitted.

The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not…

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either! I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :) However, what's your experience with taking out that home loan? I'm worried that I might one…

If you can play the game to your rules, not theirs, having a single credit card can be ok:

* Pay the entire balance every month, ideally by direct debit (they don't like doing this) * Ignore offers to increase credit limit * Actively reverse automatic credit increases. My card company tried ridiculously hard to talk me out of reducing my credit limit.

This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

Student loans also count towards credit worthiness.

For a home loan, having little or no credit, isn't necessarily a deal breaker, but does limit lender choice. At least in the UK.

I dislike the game partially because the more indirection between spending and the actual money, the easier it is to overspend or lose track. This is the whole point, of course! So I just stick to the debit card for net, and actual cash from ATM when out shopping.

Post reply on HN