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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?

#341

Post by theunixbeard »

merpnderp wrote: post #330
lr4444lr wrote: post #307

Earlier quoted context omitted.

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…

That's got to be some sort of opportunity for arbitrage.

Check out https://www.reddit.com/r/churning and specifically look out for "manufactured spending".

Re: Why Don't People Manage Debt Better?

#342

Post by randlet »

anexprogrammer wrote: post #340
randlet wrote: post #338

Earlier quoted context omitted.

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.

OK thanks. I was worried I was negatively impacting my credit rating somehow. My few minutes of research indicate that having a higher limit may actually be beneficial to someone like me who never utilizes my available credit.

Re: Why Don't People Manage Debt Better?

#343

Post by mikeash »

fredophile wrote: post #336
mikeash wrote: post #322

Earlier quoted context omitted.

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.

Sure. I'm just explaining why the bank rewards you for this seemingly pointless procedure, not passing judgment on any of it.

Re: Why Don't People Manage Debt Better?

#344

Post by sunsu »

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…

Accepting higher credit limits actually improves your credit score over time, assuming you do not actually use the credit. In my opinion, you should accept the credit limit increases when offered.

Re: Why Don't People Manage Debt Better?

#345

Post by jonkiddy »

pilom wrote: post #8

This is showing that the Dave Ramsey "debt snowball" (pay off smallest debts first to get a psychological win and some breathing room by having fewer minimum payments) is a more effective way to get people to pay off many separate debts than paying off "highest interest rate first" even if it is less optimal for a rational actor. Just another case of people aren't 100% rational that many people have known for a while…

I have also read and successfully applied Dave Ramsey's debt snowball method (suboptimal yet effective). While I was reading the article, it confirmed to me that Dave Ramsey's method falls in line with a large portion of the general public's tendencies. No wonder he is so successful, he has a large market already psychologically primed to believe and apply his method.

Re: Why Don't People Manage Debt Better?

#346

Post by anexprogrammer »

sunsu wrote: post #344
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…

Accepting higher credit limits actually improves your credit score over time, assuming you do not actually use the credit. In my opinion, you should accept the credit limit increases when offered.

But what's the point? If, as the commenter asks, you're looking to cover yourself in the event of wanting a mortgage, perhaps car loan too, you only need good credit.

I do know the UK doesn't use credit score as the US does, so it may operate on a different premise where gaming the score matters.

Re: Why Don't People Manage Debt Better?

#347

Post by spydum »

wcarss wrote: post #311
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…

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…

enough credit card programs out there provide cash back (1-5%) on purchases, for no annual fee. that ought to make using it for a monthly purchasing conduit ideal (your real cash can be collecting interest between monthly payoffs, and your transactions get a nice 1-5% haircut usually at the end of the year).

Re: Why Don't People Manage Debt Better?

#348

Post by smhinsey »

anexprogrammer wrote: post #346
sunsu wrote: post #344

Earlier quoted context omitted.

Accepting higher credit limits actually improves your credit score over time, assuming you do not actually use the credit. In my opinion, you should accept the credit limit increases when offered.

But what's the point? If, as the commenter asks, you're looking to cover yourself in the event of wanting a mortgage, perhaps car loan too, you only need good credit. I do know the UK doesn't use credit score as the US does, so it may operate on a different premise where gaming the score matters.

Both the ratio of your amount of available credit vs. used credit and the total amount of credit that you have available feed into your FICO score. From the lender's perspective, someone with a lot of unused credit is a better candidate than someone without. One of my cards recently announced a change that caused me to start looking around and its replacement had a substantially higher limit which unexpectedly gave a significant boost to my score.

Re: Why Don't People Manage Debt Better?

#349

Post by lkbm »

tomjen3 wrote: post #228
rdrey wrote: post #173

Earlier quoted context omitted.

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?

Here's what I just read:

> > > > Here's my argument.

> > > That argument's too weak.

> > Okay, here's a stronger version.

> No, you have to stick with the weak version.

Personally, I want to hear the strongest version of the arguments when I'm making a decision.

Re: Why Don't People Manage Debt Better?

#350

Post by nommm-nommm »

kalid wrote: post #326
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…

For what it's worth, I recently bought a house. Having a rotating line of credit on a credit card that was paid off did not help with some loan history requirements. The lender wanted to see loan with fixed payments in the past 3 years (which my wife had, a car loan). Sure, maybe we could have argued, etc. but a credit card paid off each month wasn't a magic bullet for building credit history. I'd say get a nominal l…

This is terrible advice. Don't get a loan just to "build up credit."
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