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Why Don't People Manage Debt Better?

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Re: Why Don't People Manage Debt Better?

#351

Post by nommm-nommm »

danielvf wrote: post #310
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…

Paying phone and utility bills counts towards you score as well. We've bought two cars and a house with near zero (or zero for many years) credit card useage. No problems at all. Our credit score were upper good before and near perfect now. We've not used a credit card in eight years. You can get a free copy of your credit report once a year from each major company - you could go ahead and order them just to see wher…

I've never seen a phone company or a utility company report payment history on my credit report.

Re: Why Don't People Manage Debt Better?

#352

Post by nommm-nommm »

PhantomGremlin wrote: post #337
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…

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 b…

All US CCs (Visa, MC, AMEX, Discover) extend warranties. I used this feature sith American Express. Its as easy to use as can be. They just refunded my original purchase amount.

I've also used price protection with Discover. Also easy to use but they take a couple weeks to process the claim and mail the check (a third party processes it)

Price protection is pretty unique - not too many cards have it. If you find a lower price later on an identical item they refund the difference. I used it to get black friday sales before black friday.

Re: Why Don't People Manage Debt Better?

#353

Post by dcherman »

randlet wrote: post #342
anexprogrammer wrote: post #340

Earlier quoted context omitted.

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.

The ratio of available to utilized credit definitely does impact your credit score positively. That's why for a while, I would periodically ask for limit increases 1-2 times per year on all of my cards even though I will never come close to the limits. You don't want to do this too often though; I think asking for an increase may incur a credit pull. Too many of those can hurt your score.

Re: Why Don't People Manage Debt Better?

#354

Post by nommm-nommm »

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…

You can play the "game" in a fairly safe manner -

Get a no-annual fee credit card. Put it in your sock drawer. Take it out every 6-12 months and buy lunch with it. When you get home put card back in sock drawer and RIGHT AWAY pay off the amount you had for lunch on your bill. (You almost always can make payments on a zero balance. Citi was kinda weird about it but I make payments over my balance all the time and only Citi gave me a "can't pay over 20% of your balance").

Just having the card and not using it "counts" in your score. The lunch is just to keep the bank from marking your card as inactive and cancelling it.

If you feel you will be tempted to use it to increase your overall spending - then by all means avoid it.

Re: Why Don't People Manage Debt Better?

#355

Post by nommm-nommm »

kaybe wrote: post #287
epimetheus wrote: post #272

Earlier quoted context omitted.

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.

Try just asking for a discount on purchases of single items above ~100€/$. It can be as simple as saying 'Can you give me a discount?'. Sometimes you get free stuff added, sometimes a few percent off. And this is just the simplest level where you don't even really negotiate, you just ask one question nicely, no conflict. Eg. hiking boots, bikes, computers are things where that worked for me.

"Is that negotiable" is a less "direct" way of asking for a discount.

Re: Why Don't People Manage Debt Better?

#356

Post by [deleted] »

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…

[deleted]

Re: Why Don't People Manage Debt Better?

#357

Post by nommm-nommm »

pessimizer wrote: post #188
pessimizer wrote: post #118

Earlier quoted context omitted.

I don't live check to check, and I don't keep all of my cash in a single checking account. edit: I guess keeping cash surplus to my immediate needs in a savings account is opting out?

Maybe I'm not expressing myself directly enough: when you overdraw your checking account, it's the latest mistake of a long series of mistakes. If having a paycheck delayed for a week causes you to have a negative net worth, you should reduce your expenses or get a better job.

Its very easy to say that when you are a software engineer who comes from an upper middle class background.

I'm not saying some people are not irresponsible but real financial strain is a tough thing to get out of, especially when you were born into it.

Re: Why Don't People Manage Debt Better?

#358

Post by dublidu »

charlesdm wrote: post #101
kdamken wrote: post #90

Earlier quoted context omitted.

I'd disagree on that last part - I'd say that if you're not making a crazy salary his advice is even more valuable. Most people spend an obscene amount of money on things they don't actually really need. Some classic examples: A $3 coffee everyday adds up to about $90 a month, when you can usually just drink free coffee from your office or buy some cheap pre-ground stuff. Spending $5-6 for lunch each day at work can…

This is the best way to get depressed. It's always significantly easier to negotiate a $1k raise than it is to reduce your spending on basic stuff by $1k. Focus on earning more, not saving (on useless expenses).

For an average American with household income $50k, getting a $1k raise (after tax) is probably not trivial. For techies in SF, definitely spend time on building your career, negotiating compensation, and try to save on rent.

Re: Why Don't People Manage Debt Better?

#359

Post by maus42 »

PhantomGremlin wrote: post #337
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…

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 b…

>there's at least a record that I purchased something from them. I'm still way ahead of someone who paid cash and doesn't have his receipt!

Debit card?

Re: Why Don't People Manage Debt Better?

#360

Post by imgabe »

barrkel wrote: post #147
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…

Debt is useful to change the time between income and expenses; it solves a cash-flow problem. That's the real key: treat it as a time adjustment in flow, and not as a stock. It's not something you can dip into, as it were; it's something you use to move consumption closer in time, in return for reducing potential consumption in the future. If you're using it to buy an asset that appreciates more than the interest on…

> Why wouldn't they just buy the asset directly, and cut out the middleman?

Let's see, why doesn't Bank of America just buy millions of houses rather than lending out mortgages?

1. They don't need and don't have the manpower to maintain millions of houses.

2. Empty houses owned by the bank are not as valuable as houses with people living in them. If the bank owned every house in a neighborhood, nobody would want to live there and their value would drop.

3. They get to shift some of the risk to the person taking out the loan. If the value of the house drops, the borrower is still on the hook for paying the original amount (up to a point, unless they're willing to go through bankruptcy). So they don't get as much upside, but they have less downside too.

I'm sure there's other reasons as well.

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