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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?

#281

Post by Shivetya »

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…

It isn't just credit cards, it is all monthlies. They add up and can catch many people by surprise. Another trap is not paying for small items like coffees, lunches and the like in cash. You lose a mental connection there.

Back to monthlies, the big ones are non negotiable and those revolve around your housing. For many the mortgage or rent will be with them for years. So pile on utilities and then comes nearly the near optional monthlies.

You get your phone, your internet, your various streaming sites, and more. Then toss a car, credit cards, and then more.

How to spot these people, look at ones who shop cars based on what kind of monthly payment they can squeeze up too. If they went over four years its a bad sign, if they went six plus, well end of story.

Oh, one last note. Track your food purchases, all of them from grocery to on the go. You might be surprised

Re: Why Don't People Manage Debt Better?

#282

Post by anexprogrammer »

bradleyjg wrote: post #58
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…

I don't think such an absolute position is warranted. It's true that saving up for a big purchase will end up costing you less money than borrowing to pay for it and paying it back. But you will have the item purchased for less time. Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January…

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 get ill or lose your job during the loan?

So many of the people bitten hard by the 2008 recession applied logic such as yours, and often drew down on their mortgages (cheaper than credit card) to buy TVs, cars and holidays.

Borrowing against a growing asset is different.

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!

Re: Why Don't People Manage Debt Better?

#283

Post by dazc »

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.

A lot of new cars are sold to fleets and these eventually come on to the used market.

(UK figures)

https://www.gov.uk/government/uploads/system/uploads/attachm...

In 2014, 54% of all car first registrations were made by companies.

Which is lower than I would have guessed, but still significant.

Re: Why Don't People Manage Debt Better?

#284

Post by mjevans »

c22 wrote: post #207
ksdale wrote: post #156

Earlier quoted context omitted.

You could ask them to buy twice as much food as they normally would every time they go to a restaurant or the grocery store. They can either eat until they feel uncomfortable and gain weight or they can start throwing a ton of food away, either way the utility per dollar spent goes way down past a certain point. Note that this assumes that you are already able to spend an optimal amount on food.

What if you asked them to buy half as much food? Would their default mode be less than twice as good as starving?

In America, it is actually surprisingly difficult to buy 'half as much food' at many places. Most mid-scale (Approx 10-30 USD/plate) restaurants attempt to convince you the service is worth the price by giving you far too much food (and also not paying their employees enough either; hence tips, which BTW I'd be inclined to stop paying in 'living minimum wage' cities (15+/hr)).

Re: Why Don't People Manage Debt Better?

#285

Post by lotsofpulp »

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.

I've had credit cards since 2005, and at least 15 different ones, and they've all had an option to autopay online so that you don't even need to remember to pay your bill. I highly doubt any major bank issued card does not have an auto pay full balance option.

Card issues make crazy amounts just in the transaction fees merchants pay, they have no reason to dis incentivize people from using them for as many purchases as possible.

Re: Why Don't People Manage Debt Better?

#286

Post by Shivetya »

bradleyjg wrote: post #58
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…

I don't think such an absolute position is warranted. It's true that saving up for a big purchase will end up costing you less money than borrowing to pay for it and paying it back. But you will have the item purchased for less time. Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January…

Outside of the big purchases, home and transportation, it is safe to say if you cannot save for it in a reasonable time you really cannot afford it.

The only time I buy anything on credit is when it is zero percent on the terms and even then if I could buy it outright or save for it quickly.

It just is too easy to get in the trap of credit and reasoning it out is the first indication you have a problem. If its important save for it, if you cannot save for it get credit counseling

Re: Why Don't People Manage Debt Better?

#287

Post by kaybe »

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.

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.

Re: Why Don't People Manage Debt Better?

#288

Post by kaybe »

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 think NZ imports a lot of cars from overseas. The used-car market is great!

Re: Why Don't People Manage Debt Better?

#289

Post by mixmastamyk »

I've never needed or carried any debt my whole life, unless trying to build some credit on purpose when I was younger. But, "unfortunately" my car is in great condition and over 10 years old. I have zero need for a new car as I work remotely and live in a walkable neighborhood with metro and uber, et al.

But beware: Credit expires after 10 years! I didn't know that. You wouldn't believe the hell we had to go thru last time we moved. Trying to get a landlord to accept a tenant with "no credit" was like pulling teeth.

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