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Why Don't People Manage Debt Better?

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Re: Why Don't People Manage Debt Better?

#331

Post by newjersey »

lotsofpulp wrote: post #166
newjersey wrote: post #144

Earlier quoted context omitted.

I imagine the credit card payment processor pays at the end of the month? So when one accepts payment using credit card, is that an automatic 30 day credit the seller has extended to me? I didn't think about that. So essentially, the credit card issuer didn't really spend "their money" at all. Wow. The more I learn the more I realize how little I know.

No, the bank that issues you credit will pay the merchant in a few days after the merchant charges your credit card account. The bank issuing your credit card is the one that extends credit to you, however, there is usually a few days between the merchant charging your account and the bank sending the merchant the money. Afterwards, if you do a chargeback, the bank will yank back the funds from any other amounts the…

This is interesting. I'd think the card-issuing bank has incentives to delay the payment as long as possible though. I'd imagine 30 day is not that bad of a term. Why is that not the case? I mean what is the merchant going to do? Stop accepting American Express?

A friend told me about this case where a vendor charged his American Express twice. They called the vendor about this and the vendor yelled at him so he called American Express for a charge back. Apparently, American Express went in and did a charge back for the whole amount. I am glad they did the charge back but it must suck for a merchant if the charge was legitimate and the customer was being a jerk.

Re: Why Don't People Manage Debt Better?

#332

Post by lithander »

Wow, this is mind blowing. 10% interest rates are really, really high in the current state of economy - they don't become a great deal just because there are credit cards with even worse conditions. I don't have a problem with borrowing money when I need it. I'm indebted for the years to come because I needed a 200k loan to buy a house. But that's okay because I'm paying 1.2% APR on it. This is far less money than I would have to pay to rent a house so it's a great deal. I've not even used all the cash I have when buying it because some of it yields higher (guaranteed) interests then what I pay for the loan. So there's still a lot of wiggle room for emergencies. And this is the first time that I hear that you need to have a history of loans to get large loans. What a devious system... I have a VISA credit card too, because it's convenient to pay with, but I don't pay any interest on it. I just pay a flat fee per year for the service and they settle the balance each month by direct debit authorization. (Sorry for the bad english)

Re: Why Don't People Manage Debt Better?

#333

Post by evanpw »

tunesmith wrote: post #256
cperciva wrote: post #115

Earlier quoted context omitted.

Not really. Completely flat percentage taxes (e.g., pay 10% of every dollar you earn) reduce everybody's utility by the same amount if you have a utility = log(dollars) model. Actual "flat taxes" (e.g., pay 10% of every dollar you earn after the first $10k) have a larger impact on the utility of high income earners (at high incomes you approach a change of log(0.9), while at low incomes the impact of the tax on utili…

I don't understand this. If the utility of money is roughly logarithmic, then that would imply the most fair tax bracketing would be a logarithmic curve. An example would be the "logarithmic flat tax" I see mentioned sometimes - figure out how many times above the poverty rate you make, log-10 it, and multiply by some flat constant (they usually recommend 9 or 10). If you plug in a middle-class earner's revenue to th…

Logarithmic utility of money implies that the last X% of your income is worth the same amount of utility, regardless of what your income is: log(x) - log[(1 - r)x] = log(x) - log(1 - r) - log(x) = -log(1 - r). But "does the same harm to every person" is not necessarily the right definition of "fair" in the context of taxes, though.

Re: Why Don't People Manage Debt Better?

#334

Post by packetslave »

lr4444lr wrote: post #307
Sir_Substance wrote: post #305

Earlier quoted context omitted.

>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…

Capital One has a 1.5% cash back on all purchases card. I put everything I can on it, and pay off in full very month on time. Does the prospect of paying only 98.5% of almost every price before your eyes not interest you? If not, then I don't know much what will. Your financial prudence will be rewarded with these residuals if you help the banks get their merchant fees. Over a lifetime, it can add up, and the fraud p…

yep, and Citi has a 2% cash back (1% at purchase, 1% when paid). Discover is 5% back on a different category each quarter (and Q4 is Amazon), and Amazon's store card gives you 5% statement credit on everything you buy.

Re: Why Don't People Manage Debt Better?

#335

Post by fredophile »

lr4444lr wrote: post #307
Sir_Substance wrote: post #305

Earlier quoted context omitted.

>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…

Capital One has a 1.5% cash back on all purchases card. I put everything I can on it, and pay off in full very month on time. Does the prospect of paying only 98.5% of almost every price before your eyes not interest you? If not, then I don't know much what will. Your financial prudence will be rewarded with these residuals if you help the banks get their merchant fees. Over a lifetime, it can add up, and the fraud p…

Citi has a 2% card. If you spend a lot in a particular category such as gas or groceries it isn't hard to find a card that will beat this.

Re: Why Don't People Manage Debt Better?

#336

Post by fredophile »

mikeash wrote: post #322
dibujante wrote: post #308

Earlier quoted context omitted.

To be fair, if you really aren't capable of understanding how credit cards work, "never use credit cards" is probably the best internalized advice to have. I still don't get it. My credit card is a device by which my bank gives me some incentive (aeroplan miles, cash back) to put my transactions on a card and then immediately pay them off, instead of performing those directly against my bank account.

When you buy something with your card, the bank collects a fee from the seller which is more than the value of those incentives.

Unless the seller offers me a cash discount this is already baked into the price. The choices are get something back from using the card or don't.

Re: Why Don't People Manage Debt Better?

#337

Post by PhantomGremlin »

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've never used a credit card

There are many reasons to use one. Others here have already given you some. But I want to add one more good reason: protection. So here you go:

- I try to pay for all restaurant meals with a credit card. Then, e.g. if I get sick eating at e.g. Chipotle, there's at least a record that I purchased something from them. If I lose the receipt I might not remember whether it was a taco or a burrito, but I'm still way ahead of someone who paid cash and doesn't have his receipt!

- If I have a dispute of any sort with the supplier, it really helps to at least have the threat of a credit card chargeback available. Too many disputes or chargebacks are bad news for vendors, and most will want to avoid those.

- Some cards will extend the warranty on a purchase, but I've never availed myself of that feature so I don't know how easy it is to use.

Re: Why Don't People Manage Debt Better?

#338

Post by randlet »

anexprogrammer wrote: post #320
Sir_Substance wrote: post #305

Earlier quoted context omitted.

>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…

Why ignore offers to increase credit limit? I keep accepting higher credit limits because I was under the impression there is no down side. (I only ever use a small fraction of my limit and never carry a balance.)

Re: Why Don't People Manage Debt Better?

#339

Post by alecco »

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…

Just appreciating is not good enough. You have to compare it to getting a safe investment paying market interest.

http://www.investopedia.com/terms/i/irr.asp

http://www.investopedia.com/terms/n/npv.asp

Unless you take some utility of the appreciating asset, you should always go for the best investment.

Re: Why Don't People Manage Debt Better?

#340

Post by anexprogrammer »

randlet wrote: post #338
anexprogrammer wrote: post #320

Earlier quoted context omitted.

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…

Why ignore offers to increase credit limit? I keep accepting higher credit limits because I was under the impression there is no down side. (I only ever use a small fraction of my limit and never carry a balance.)

Because I didn't want the temptation to use it. Especially if I found myself in a challenging position. I'd far rather have it brought down to a limit I would choose. They increase it precisely to tempt you to use it, after all.

At one point I had as much available credit across two cards as balance on the mortgage, whereupon I decided it was silly and I'd like them to reduce please.

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