One thing that's unclear for the article: does this include debt that never incurs any interest?
I typically have an outstanding balance in the 3-4 figures on my credit card because I pay for rent, gas, and airline tickets with credit. However, it gets paid off every month. I guess that's technically debt, but it's not problematic or anything...
I feel like the majority of credit card debt is the type of "debt" that I incur every month.
Ignore these statistics, they're reporting average debt of credit cards. The level of debt per card is not an independent variable. You need to be reporting median debt.
I sadly think those numbers are low-balled. But also, everyone complies their stats differently. I have 10 credit cards. I find it strange the average is barely 2. Most people I know hold ~5 but only use 1-2. But I also think the average debt per household is higher too. Since your numbers are 'per us adult'.
Regardless, I think US citizens are carrying way too much debt and...one day, this musical chairs dance will come to a stop. :/
Those numbers are averages. They have a minimum of zero (credit cards don't report positive balances), but their maximum can be large.
The right, most informative conclusion about one $10k balance and 9 $0 balances is that "almost everyone in this group carries no balances, but one carries unmanageable debt", not "the average credit card debt is a manageable but significant $1000".
Statistics guarantees they are guaranteed to be high, not low. Medians and top/bottom percentiles would be more informative.
FWIW, I don't think you or I actually know that many average people. While we've got a pile of no-fee cards with high limits, many people get by with high-interest, low limit cards that have fees attached. Below that there are a lot of people who have to rely on prepaid Visa cards to participate in the cashless economy.
Source: have moved a _lot_ of credit cards through SEM.
I agree based on my post but...I've also read many 'stats' about this issue of US personal debt and have seen various figures range to what the OP wrote to adding a ZERO to each figure. 2.24 >> 22.4 cards. 7,000 debt >> 70,000 debt. Etc. The stats on this topic are just all over the place. Not only do I think 'you nor I' would know the averages, I don't think anyone really has a clue except maybe the FBI/Fed/CIA, if they ever looked into the matter.
One thing I think we can all agree on is that American's are deep into debt and it's not looking good. :/
The median of a list of numbers is the value that minimizes the sum of absolute differences to each value, sum([abs(median - x) for x in list])
The average of a list of numbers is the value that minimizes the sum of squared difference to each value, sum([squared(mean - x) for x in list])
They're both summary statistics in that they're single numbers used to describe a dataset, but a median is not a "kind of average." The mean is the mean and nothing else.
Incorrect, median, mean, and mode are all types of averages. Usually when people say average they mean the mean, but they're all different kinds of averages trying to identify the central tendency.
"Average: a number expressing the central or typical value in a set of data, in particular the mode, median, or (most commonly) the mean, which is calculated by dividing the sum of the values in the set by their number." -- Google
> Incorrect, median, mean, and mode are all types of averages.
There's a bunch of means (arithmetic, geometric, and harmonic, for instance), and they are all (as well as median and mode) averages.
Though, usually when people say "mean" without further specifics they mean the "arithmetic mean", and usually when they say "average" without further specifics they also mean "arithmetic mean" (though "median" is also fairly common, and "mode" isn't that uncommon.)
They say the average US household has $15,762 of Credit Card debt.[0] (that's disputed it could be from 5K to 15K depending on what numbers you believe) [1]
With an average rate of 15.07%[2]
Which works out to something like a minimum payment of $600 a month with $188 of it going to interest.
The Average US consumer is not just tapped out but actively being strangled by debt.
"47: The percentage of Americans who can’t pay for an unexpected $400 expense through savings or credit cards"[3]
What this really means is a near majority of the country is on the very brink of bankruptcy one trip to the ER (with insurance) or a tire blowout and down they go.
The terrifying part is that any hint of recession and the ripple effect could take a lot of us down with it.
Wealthier people are the ones who have unsecured credit cards. Banks apparently have no problem giving me a limit of $50k without any sort of collateral, but my dad can't get a credit card without depositing his entire limit.
I was given an unreasonable amount of unsecured credit when I turned 18, by virtue, apparently, of the fact that I was now 18. It certainly wasn't because I had any stable income or assets.
And its only the tip of the iceberg, read Richard Vague or Steve Keen. Global private sector debt is at historic record levels. It's the sole reason the economy stays sour.
There was an eerily prescient 2006 documentary about consumer credit called "Maxed Out," which featured a scene where someone recalled going to a conference of bank and credit card executives, and one of the CC CEOs plainly stated: "The bulk of our profits come from people making minimum payments for the rest of their lives."
As for "pay-in-full" folks like you and me, credit card companies could care less. Whenever we pay with plastic, they get processing fees.
When I came to the US I couldn't figure what "minimum payment" means. It took a while to realize that it's a totally arbitrary amount and really has no meaning for any kind of financial planning. I bet a lot of people think they are paying off their debt by making minimum payments.
I don't know if it's a law here, but every account statement I've ever gotten on revolving credit has always included a statement below the minimum to the effect of: "If you only pay the minimum payment, it will take you 10 years, eight months to fully pay off this debt."
When you see that beside a $2000 or $3000 balance, it paints a pretty clear picture of what paying the minimum is doing for you. I think the only way it could be improved is by adding in how much interest you'll pay over that time period.
Well the idea is people don't pay off the principle fast enough not to end up maxing out their cards. Then they just apply for new ones. This is why people are in hock for life.
Then come the vultures. Consolidation loans, payday loans, etc.
It's banks that do, CC companies primarily just facilitate the data exchange between the parties involved and charge per tx fee.
The way banks make money on those payments is the way any other interest loan payment works - you'll eventually pay what you owe but by the time you're done you paid the original debt + interest.
Actually, the issuing banks will get some of the transaction fees as well, so they make out both ways. The "CC companies" are better thought of as networks (Visa, etc.) and they live mostly on those transaction fees, as you mention. The networks don't issue any cards, and they carry debit and other transactions as well, so not quite right to call them "CC companies".
Probably splitting hairs at this point, but yes, the issuing bank will typically get a per-tx interchange fee from the merchant bank. Merchant bank will charge the merchant to recoup that cost.
Yea 'CC Companies' is not the most accurate term, but when someone uses that term in a casual conversation I typically know what they mean :)
Are they really even lenders anymore? I'll refrain from colorful characterizations of what they might be. Real
lenders throughout human history want a nice predictable retirement of the debt so they can use reserve multipliers.
You ever see the new disclosures on a credit card?
It usually says something like:
On your $1000 balance, paying only the minimum will take 7.5 years to pay off the balance and you will pay a total of $3500. Pay $35/mo and will pay off your balance in 3 years and pay a total of $1500.
Which is still kind of deceptive considering if you can't pay back that balance immediately, you likely won't be able to go 7.5 years without putting more on.
The issue isn't predatory lending by credit cards (necessarily anymore), it is our obsession with having material goods and "keeping up with the Joneses"... who are also in debt up to their eyeballs.
So, in my mind, it is just a race to the bottom (of your lifetime bank account).
I do this too, and many Americans probably start with the same tactic or strategy. The problem arises... when problems arise. You start carrying a balance to cover short term issues, which can turn into long-term issues which are made worse by your new high interest credit card debt.
Can confirm. $300 monitor spiraled into $2,500 of debt by the end of college (The downfall was precipitated by that month-long gov't shutdown which I was told not to worry about, "it might be a day or two, if that"... and then I wasn't paid for two months because I was a contractor)
As I applied for a mortgage, this question came up - as it pertains to "how much debt do you have?" - and the answer was that I only have as much debt as the minimum payment I must make each month. I told them I always pay in full, they said then you only have $10 in monthly debt ($10 being my minimum payment amount).
From the article:
"Even American Express Co., which historically has focused on customers who pay their bills off every month, is now concentrating on lending money to consumers who keep a balance.
Outstanding balances reached nearly $952 billion in the first quarter, ..."
This seems to imply that, by "keep a balance," they mean not paying your bill off every month.
I make less than 30k/year, so I'm not exactly rolling in it. Although I'm highly unusual because my very realistic earning potential is 3x what I currently make (STEM grad student).
Still, putting only rent on a CC = 1k+/mo where I live.
I would venture to guess that 'your type of debt' [like mine] is actually the minority. Most Americans actually carry a balance, hence why the card companies continue to push/prey as they do.
There's a few services that will act as intermediaries for you like https://www.plastiq.com/ which charges 2.5%. I learned about these services on Slickdeals in a discussion on how to quickly rack up credit card reward points. A Google search turns up this list http://www.doctorofcredit.com/complete-list-of-options-for-p... (I'm not affiliated with the author).
Ya, I've seen these. It seems like the fee would likely be more than the value of the reward making it a losing proposition? Just wondering if the OP found a better way.
The land lord I use allows paying with plastic. There is a ~2% fee. It's better than a wash financially, but just barely. But it's net win for me even when it's a wash because I don't have to worry about mailing a check every month.
FWIW in months when I buy expensive plane tickets or make reimbursed purchases I skip paying rent with the CC.
If you just don't want to mail a check every month, you don't need to go as far as a credit card and paying a 2% fee. Your bank should have a bill-pay feature, and they will cut a check and mail it on your behalf. Usually this is a completely free service and can be done on an automatic schedule.
These services are routinely awful and incompetent, however. Also, you're relying on the postal service actually delivering the mail, which is often a dicey proposition.
Bank transfers really ought to be easier to do than they are.
I helped a landlord I was working with on other projects set up a basic Stripe form on the website for one of their properties. No subscriptions or automated payments, you can just go to their site and send them money via credit/debit card.
They eat the couple percent in transaction fees. In return, almost all of their tenants now pay online and instead of the property manager chasing people down for money, everyone generally pays on time (or, in a number of cases, early).
Depending on your priorities, "not having to chase people down for money every month" might be worth paying the $500/mo.
I haven't mailed a rent check in quite some time, my old property management company used paylease to accept online rent payments ($2 fee to pay with ACH, but at least I didn't have to mail a check). My current rental I just pay the property owner directly through Wells Fargo SurePay to her Chase account, works great and no fees for either of us (which makes for a happy me not having to mail a check, and a happy property owner who doesn't have to lose a cent of her rent just to accept payment).
I do not miss mailing checks in, and I do not wish to ever do it again.
It pretty much has to be, by definition, otherwise either the service or the card company would be losing money. It generally only works out if there's a loss leader that you're taking advantage of, e.g. many card companies offer occasional rewards at a loss to encourage people to use the card more in the long term.
You only use it to meet the spending requirements for the signup bonus. For example the Slickdeals home page has the Chase Sapphire right now: "50k Bonus Points ($625 towards travel) w/ $4000 Spent in First 3 Months of Account". Other cards have similar spending requirements.
My apartment accepts payments by card, but they pass the processing fees to the renter so it costs like 3% extra, which more than cancels out the CC rewards.
My last apartment had the same option, so I think it's pretty common.
Your landlord accepts credit card payments and you pay him/her with your credit card? No different than any other vendor. Mine charges like 2% or something to cover costs.
My last landlord waived the fee if we had it set on automatic bill pay (via the credit card), I'm not sure if the peace of mind was worth the loss, but considering rent was 750 dollars, 2% would have only been 15 dollars. They probably pad the rent a bit to make up for it, but 750 for a 2 bedroom apartment was still a pretty good deal for the area at the time.
With the additional 2-3% that is charged, it comes out to about very similar to purchasing the points directly.
Like Amex SPG costs $157 for 5000 points. If I pay my $1500 rent via my Amex but with an additional $50 premium, after 3 months, I have 4500 points for $150, versus being able to purchase 5k points for $157. If I spend $525, I can get 20k points. So it's better for this particular card to put aside the extra fees paid in rent then purchase the points in bulk at discount than earning the points directly.
Ideally, there's a landlord that doesn't assess an extra 2-3%, then it would totally be worth charging rent on a card.
The key is using the right card with the right processor. There are certain cards that earn multiples with certain processors. Personally, I use a card that gives me 3 points per dollar and pay 2.5% in fees… so I'm "purchasing" points for 0.8c per point. Those points are worth 1.5c+ per point, at the very least.
In fact, I just used 75k of them for a first class ticket to Asia. At a "purchase cost" of $600—so I'd call that a sweet deal.
Gather round and I'll tell you a tale of how to lose at the credit card game.
When I turned 18, I got my first credit card. I asked my father "good idea?" and he said yea, good to build up credit. Ok then. A week later, my new card with a whopping limit of $750. Never having experienced not paying with cash I had, it gave me an odd thrill and I went out to eat with my friends and joked "It's like free money!" And despite knowing better, it certainly felt like free money because the numbers didn't change in my bank account. Sure I knew I'd have to pay it off, but whatever, I'd do that later.
Now, like all good citizens, I spent the first couple years always paying off the balance I owed. Nor was it long before credit card offers came to me and I said "hey good to build up credit" and signed up for them. My next big one had something like $1500 limit and I was 19. Soon enough, I was doing great -- my credit was high & debt low -- looks good for credit.
Well, soon enough I was in Boston going to college and working part-time. One day at work, I got another one of these offers and thought "why not?" This time was special though because it asked me what is your household income -- not my income. Well.. my parents didn't make much but we weren't poor either, so I added together the incomes and said my household income was $150k. I felt a bit mischevious putting it down -- was it the truth? What was going to happen? Would they check to see if I made that much?
No, instead, they were more to happy to oblige and gave me (a 20 y/o) a new credit card with $12,500 limit. Holy shit! I thought to myself, I have a LOT of free money! Over the course of the next 4 years in college, I would eat out whenever I pleased and generally kept my credit under control, but slowly & surely my credit usage was rising. Fast forward a few years after that, and I have a total credit line of about 30k -- all maxed out. Was I being outright financially foolish ordering $100 bottles of Chardonnay at the club? Not at all. Was I being financially negligent ordering whatever small thing came my way that I wanted? Yes -- because I could.
So then you find yourself in deep debt, and what do you do? You start paying the minimum off and then re-using that credit. Do you care so much about paying it off? No that seems like an eternity away, paying the minimum is easier. Do you know it's wrong? Of course. Do you care? Not as much as you should.
This my friends is how you lose at the credit card game and end up just paying fees to bank execs. It can be fun, but I do not recommend.
Can you elaborate on how you perceive the difference between the two examples here? Being financially foolish and negligent seem both to apply to your experience.
"Was I being outright financially foolish ordering $100 bottles of Chardonnay at the club? Not at all. Was I being financially negligent ordering whatever small thing came my way that I wanted?"
A single large purchase is usually planned for and budgeted. E.g. buy computer for $2k and pay it off over the next couple of months $300/mo at a time. Though IMO, $100 of chardonnay at a club is pretty frivolous.
Usually it is a death by a thousand cuts when it comes to racking up credit card debt. $20 for lunch, $50 for gas, $65 for some clothes, $100 for the electric bill. The problem is that pseudo-necessities like food, gas, entertainment don't have an end and reoccur indefinitely. It becomes really easy to fall into the trap of purchasing 2x $10 meals a day, and it easily becomes $600/mo, while the $200-300/month in groceries that were also purchased with the plan to stop eating out makes for a $800-900+/mo food bill.
Yep. This is my failing as well. I don't carry a balance because thankfully, my income is modest but I keep recurring expenses to a pretty strict minimum (no car payment, cheap rent, only like $12k in college debt that I'm paying off, etc).
Still, when I go through mental phases of not caring/not paying attention, even though I'm paying off my balance and setting aside some savings every month, occasionally I look at my statement and think "holy shit, how did I spend $1500 that month?!"
Usually those are like the months where I bought one semi-pricey thing (under $500 but still not just groceries and bills) plus a load of Amazon or Adafruit or any number of little tools, toys, hobby supplies, lattes, bar tabs, etc.
Still no problems paying my credit card off every month because I've been there and I'm not going back. Still, it's very easy to lose track if you get spoiled and complacent. Sure, it's nice being able to spend a few hundred bucks on supplies every time I want to take on a new project around the house but those things really add up and eat into money I should be saving, investing, or using to pay off that minor college loan earlier.
I try to pay for all the small stuff in cash. Lunch, gas, movie tickets, booze... cash, cash, cash. Because my wallet notifies me when I'm spending too much. "I have to go to the ATM again? What the hell am I spending so much money on?"
Outright as in "completely" or "immediately" financially foolish is like going to the club with your friends and announcing drinks are on you. My negligence (as in, I didn't stay on top of it as good as I should have) I meant as more drawn out and not so painfully obvious. It's like a hole in a boat that you keep meaning to get around to, but hey the boat's still moving just fine.
> Outright as in "completely" or "immediately" financially foolish is like going to the club with your friends and announcing drinks are on you.
Why is that ipso facto financially foolish?
Personally, I have a great time going out with friends and having drinks with them. I like being able to pay for their drinks. I also pay off my bill every month and have a very healthy savings account.
You pretty much fit the description of a financially irresponsible person, I have to say, I'm afraid. (You seem to be aware too so that's good I guess.)
What did you think when I told a story how to lose at credit cards? That I was financially responsible? Did you think I thought I was financially responsible. Honestly your comment states the obvious and is just rude, so no you did not "have to say" it I'm afraid. I bear the tolls my financial foolishness cost me. Keep your judgments in your head and do not
justify them with a smug
veil of concern ("I'm afraid" "good, I guess")
FWIW: This story is not a present tale but one that happened to me. I'm shrewd enough to see my way out of foolishness -- a quality you spare me in your claim that I'll be in bankruptancy court.
I propose that credit card debt is simply the earliest signal of "not making enough money to sustain the life you think of as normal."
We have not yet come to terms with the fact that the overwhelming majority of people outside of a tiny sliver of elites are going to be lucky to afford bare subsistence in the years to come. Credit card debt lets us delay confrontation with the reality that wages have not grown enough, employment is not strong enough for most people in middle-class jobs to live the lives we used to think of as middle class.
Of course you reach for plastic before you stop buying groceries.
Credit card debt probably isn't the "earliest" signal of that. We've been running pretty solid federal deficits for going on 40 years now -- that's probably a good indication that people feel that they deserve more than they pay for.
US citizens are binging on credit to make up for stagnant wages. That's not a theory, that's a fact. First it was housing, now its credit card and auto loan debt.
Fun fact: Subprime auto loan bonds are in a slow motion trainwreck:
You're asserting that, if wages were not stagnant, people would not binge on credit? Maybe that's true, but I doubt it's noncontroversial enough to be declared "fact rather than theory".
Because presumed GDP growth eclipses the debt over time. They ran cool BILLIONS in terrifying debt in the US in WWII. Now? A billion is what a mid sized company costs.
And if you don't run any debt, it's like having zero body fat in cold climates. No insulation, and any caloric deficit causes much more severe problems.
But why does that make analogies to household finance invalid? It may also make sense for a household to take on debt if there is projected income growth.
Also, isn't the accumulation of body fat the definition of a surplus, rather than a deficit? In both cases, having run a surplus in the past provides protection for when you must run a deficit in the future.
Furthermore, are you suggesting that, a metabolic analogy is more correct than a household-finance analogy?
The Household Debt Fallacy is a specialization of the Fallacy of Composition.
1) The debt is eclipsed by GDP rise over time.
2) A government ( at least used to ) be able to very slightly weaken its currency to equalize for GDP and population growth.
3) Mild inflation acts to equalize the effects of private debt as well.
I use the metabolic analogy because the risks of no body fat and low body fat are quite different, much as the risks of mild inflation and no inflation - or more accurately, deflation - are quite different.
+1. People who have not yet internalized that they are poor, sustaining to themselves and their children the lie that they are their parents' version of middle class.
I'd be interested to see your (or anyone from that article's) monthly spending/expenses and income. Do you have crazy medical bills or student loans that you can't avoid?
Do you budget your money out and track every transaction? It sucks to be in that situation, but there are always things you can do to improve it.
Do you truly believe half of Americans are maxing out their credit cards on bar tabs and clothing? Does that make sense when the majority of bankruptcies are from medical debt?
I don't think credit card debt is driving people into bankruptcy, mostly. From what I've seen (which isn't a ton, but some), people just build it up slowly buying toys and treats. Eventually they stop, either because they get smarter or just can't get any more credit, and then either sustain the debt or very slowly pay it down.
It's hard to go bankrupt from this directly because they're careful not to lend you more than you can pay back. It doesn't always work, of course, but they do a decent job of figuring that out.
Note that a lot of medical bankruptcies aren't bankruptcies due to medical bills alone, but are people with insurance who go bankrupt due to a combination of deductibles, additional non-medical expenses related to the illness, and a sudden reduction in their ability to work. Having a bunch of credit card debt instead of a bunch of savings could easily put someone in that situation, so the two probably work together a lot.
Honest question. There aren't debit cards in the united states? They are simple plastic cards like credit carda but the bank is withdrawing your money directly from your account. There is not debt involved.
I don't know how general this is, but I'd say it's common for banks to cover also fraud costs for the customers in Europe. Be it fraudulent debit card payments or Internet banking transactions, I've seen news of banks covering the customer's ass on both.
Not sure how often they can reclaim the money, and how often they just take the loss for better publicity.
But which would you trust more when something goes wrong and your "card number" racks up thousands of stolen purchases:
1) credit card dispute/chargeback process that is mandated by law
2) the promise from your bank that, on their good will, they will fix things
Not only that, but thousands of dollars on your credit card is "loaned" to you by the bank, the money's not out of pocket on you yet.
However, thousands of dollars of stolen debit card transactions means your bank account is thousands of dollars lower immediately, and you have to hope your banks promise to give it back will actually pan out.
Also the fact that credit cards aren't your money you are spending.
If someone steals your credit card, you can say "Not my money! That's your problem" while a debit card is the opposite. Plus banks employ people to fix fraud while you (probably) don't.
Sure a bank will eventually rectify debit fraud but in the mean time, why would they care? It isn't their money.
The rewards system is the wrong incentive here in my eye.
It corrupts everyone and everything down to each penny, on every transaction. Everyone along the line where the money flows is incentivised to get you a) hooked on credit cards and b) on paying by credit cards. The issuer, the merchant, the card institute, the processors in between and even the buyer get's a cut from the exorbitant high fees.
Merchant here. We don't get a cut from "the exorbitant high fees"; we pay 2~3% for the (substantial utility of) being able to reliably take money from you in seconds.
While reviewing statements from our processor ~8 years ago, I noted that some transactions had slightly higher fees than others. Research found that those were... rewards cards. So, the processor may pass some of the cost along to the merchant.
As for the "free money" argument, research [1] suggests that humans tend to spend more when using credit / debit cards than they do when using cash.
I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card. DCC, dynamic curreny conversion at Visa/Mastercard or similar.
The gains on higher fees are then split between the merchant and the processor.
Edit: Yes I think the fees are exorbitant - hence some lawsuits in the US and some EU countries with regulated, lower interchange fees.
> I see I need to back that up: some merchants ask you if you would like to pay in your local curreny at POS when you are travelling abroad with a credit card.
That's an annoying situation and (is entirely optional). But it's also a relative outlier and is definitely insufficient evidence to claim that the whole system is irreversibly corrupt.
There is no such thing as free...you simply flew thousands of miles paid for by paying an extra 1 or 2 percentage points for everything.
On the other hand, if you did not fly thousands of miles using miles and points, and you still paid the same price as the cardholders, then you helped pay for those who did fly around for free.
> I'd love to know how I'm supposedly being "corrupted."
Yes, corruption might be a too strong word here. The way I see the whole rewards system is that the users actually got paid in order to use their payment method again and again. They pay you. They bribe you, the incentivse you and eventually, it corrupts the way you're spending.
Credit cards are superior to debit cards in every way in the States.
Not only are credit cards more robust at consumer protection, but credit cards have 1% to 5% back deals. When I purchase gasoline, I get 3% back for example. As long as I pay back my credit cards every month, I never pay interest. AND I get the 3% back on gasoline and 2% back on groceries, 1% back on everything else.
There is almost no reason to use debit cards in the US. Use credit but pay it off.
They do exist. However "as a convenience" they allow overdrafts at ridiculously high costs. AFAIK you can't shut this feature off and just have charges declined if there isn't enough money in the account.
That completely 100% depends on your bank. I can and have completely disabled overdraft on my debit card. It will reject transactions if my account is empty. (I actually can't imagine a bank not offering to completely disable this, especially if they charge fees for the same. But I'll accept your word on it.)
Based on both these replies I went to go look at my account. Apparently the way it works is that you can shut off overdraft protection and if you strictly use the card as debit than any overdraft should be rejected. However if the card is run as credit, which it can be since it has a visa logo, then there's no way to force it to always decline the charge if there isn't enough money in the account.
Banks are really hard to deal with for this kind of stuff. I took the time to get overdraft protection shut off, and a few months later I got a letter from the bank notifying me I'd been signed up for free overdraft protection.
I try not to use my debit card for two main reasons: fear of fraud and lack of rewards.
While I believe my credit union would reimburse me if someone were to steal my debit card information and use it to make a bunch of crazy charges, that would also mean that I could literally have no access to cash for some period of time. This isn't a fear with my credit card since fraud never becomes "real" to me - I've never had to pay back fraudulent charges.
Second, I pay a nominal fee ($75/year) for an American Express card that offers higher cash back rates on the purchases that happen to make up the bulk of my expenses (6% back at grocery stores!). Without that $75 fee, cash back would be 3% at grocery stores...still pretty good.
I have never carried a balance on my credit cards - I set the closing dates for all my cards to be the first of the month, and I set an automatic payment for the balance of the card to be processed on the second. Clearly this is something most consumers don't do, but it has worked well for us.
If you're good with money, debit cards are a waste for the most part. You can get credit cards that pay you at least 1-1.5% for every purchase. They're basically paying you to spend your money.
If you're bad with money, steer clear of credit and stick to debit though.
The caveat here is that debit cards that withdraw from your checking account carry the risk of massive overdraft fees if you're really bad with money or just barely scraping by.
Interest on a credit card can be bad but years ago I had a bank pull some really shady stuff to hit me with hundreds in overdraft fees on a handful of minor purchases.
Essentially, I was living just about hand-to-mouth as a young underemployed guy and when payday rolled around, I'd go to deposit my paycheck and then over the next couple of days, I'd check my balance online to see when it cleared. Once the funds showed up as available, I'd head out and put gas in the car, buy groceries, pay rent, maybe grab a 6-pack (again, naive, irresponsible guy) and whatever other little things I'd been holding off on buying until I got paid.
Well, fast forward a week or so and it's almost Christmas. The boss gives everyone a $100 Christmas bonus and I'm thrilled because I never have enough money to go around. I go to the bank, hand the teller the check, and when I get the receipt? Maybe $10 or so balance.
Turns out that when I deposited that paycheck several days ago and waited for it to clear before making several small purchases, the bank messed with the dates and times, essentially pulling the credit, running the debits, incurring many $35 overdraft fees, then applying the deposit after the fact.
The kicker was that the website now showed this new timeline and I didn't have anything printed out to show for it. Not only did they drain my bank account but they took my Christmas bonus to pay the bogus charges.
No amount of speaking with staff did any good. They told me I needed to be better at balancing my checkbook. It was right around then that I learned the real way it's really expensive to be broke. If you don't have credit or some sort of savings to act as a buffer, banks will find all sorts of ways to penalize you and take advantage of you.
Eventually got my shit together. Went back to college to finish my degree, paid with a loan, now all good with a modest salary, only $12k or so of college debt, no car payment, and enough of an emergency fund that I could pay rent and live frugally for a year without employment if I had to.
Sorry for the long rant. Haven't told that story in years and hadn't thought about it in as long. But once I started thinking about it, it all came back to me.
Debit cards are awful. Many purchases that you make with a debit card (gasoline at the pump, for instance) will end up double charging you, with the actual amount, then some sort of hold in addition. Sometimes the bank gets their shit together and clears it out correctly, and sometimes they don't.
Combined with the general volatility in how long it takes funds to clear when deposited (way longer than it should...), and unpredictability on how and when charges will be computed on your debit account, it's just smarter to use the float that credit cards offer, even if there were no rewards.
In addition to the fraud protection and rewards, credit cards also give you some float, which translates into a bit of additional free money. As long as you pay your balance in full each month, there are no additional charges. The result is that I pay for my purchases 20-40 days after the purchase. Interest rates are amazingly low so this doesn't do much, but it's nothing.
Credit cards are great if you can be responsible with them. That's a big "if." For many people they are a disaster.
Of course there are debit cards. How do you think people use ATMs in the United States?
Unless you have psychological issues, it doesn't make sense to use a debit card for purchases though. Credit cards give 2% cash back, an interest-free loan for 30 days, and great consumer protections.
I can't read the article, but the title is a non-sequitur: overdrawing is not inevitably tied to bank cards. Other societies have things like a direct debit infrastructure which allows consumers to use plastic cards without the risk of overdrawing. That doesn't mean it's impossible though: many Dutch banks allow the customer to choose his overwithdrawal limit. Mine is set to zero.
I know some may criticize this, but I cut up my credit card soon after moving into my first apartment. My wife and I use debit cards exclusively, but I know it's only a matter of time before our card numbers get skimmed online or through a hacked terminal. Does anyone know of any measures we could take to minimize the effects when that does happen?
(not affiliated in any way) but privacy.com lets you hook up to your bank account and lets you generate one time use card numbers for individual bills, etc. They recently expanded to 15,000 banks/credit unions. It won't help with physical card skimming, but for online stuff it can.
Another option is to use one credit card, and only use it for bills/budgeted expenses and NOTHING more. Then just pay it off every month. This will prevent your real money from being being stolen/frozen in the event of your card number being lost/skimmed, and it can also gain you cash back and/or rewards.
Not affiliated either but I love privacy.com! I've been using them since I saw it on HN a few weeks back and no looking back. I regularly get to exchange messages with the team and they've fixed many bug reports in record time (nothing serious, just finicky stuff).
Unlike my credit card companies who refuse to get with the program and show me auths and captures in somewhat real time. Having to wait days to find out what went through is such a joke. I thought cards were supposed to be easier... if I spent $10 in cash I know I've spent $10, with a CC I wait 3 days and find out butterfingers misplaced the decimal and I'm left trying to hunt down $1000.00 that's now on my account while I'm miles away.
Use a credit card instead of debit card and pay it off each month. If they steal your debit card number and get money out of your bank account it's a huge hassle to clear up that can take months with out getting your money back. If it's a credit card you can easily get the charges removed and even if you have to fight it you still have your money in your bank and can just refuse to pay the fraudulent credit card bill.
Credit cards have much greater fraud protection than debit cards. In the few times someone made a fraudulent purchase on my credit card, they instantly messaged me to confirm, then removed the charge and mailed me a new card/number.
Get a credit card; and a new savings account. Put an amount of money equivalent to the credit card's credit limit in the savings account. Don't touch that account so long as you have the credit card. Set up autopay for the full amount on your credit card every month.
And there you go… you have a credit card with all the benefits associated with that; but you're completely safe and don't run the risk of going into debt. If you're spending too fast, or if things go wrong, you can immediately close the credit card and pay it off in full with the amount in the savings account.
Don't use debit cards? Let the hackers hoover up somebody else's money, rather than pulling straight from your bank accounts and have your rent checks bounce and over-draft fees kick in.
It's easier to disavow spurious credit card purchases than somehow get your funds back from bad debit transactions, let alone the fees when your fixed expenses don't clear because some asshole stole your money.
It was interesting that a year ago the media was saying that Americans were pulling back on credit use, and paying it down. [1] I'm curious if that was honest reporting, or if something changed which caused people to spend more?
That is correct, the total outstanding debt was down as of year ago (side benefit of lower gas prices leaving more cash in the pockets of consumers), but the article mentions the banks have revved up their credit card distribution since then:
"Because many creditworthy consumers are still cautious about spending, lenders are turning more aggressively to subprime borrowers. Lenders issued some 10.6 million general-purpose credit cards to subprime borrowers last year, up 25% from 2014 and the highest level since 2007, according to Equifax."
"Overall, lenders gave out more than 104 million general-purpose and store credit cards in 2015, up 6.5% from a year earlier and up 47% from the bottom in 2010, according to Equifax."
So we are back at the subprime lending model. Correct me if I am wrong but from my understanding this is what ultimately caused (or one of the biggest factors along with adjustable rate mortgages) the housing collapse and economic downturn circa 2007/2008. So how is this subprime lending any different via the credit cards?
We could hypothesize that credit card debt won't be as massive as mortgage debt and thus may not cause catastrophic events. However, on the flip side there is little to no collateral in credit card debt that a creditor would get in return of defaulting on your credit loan.
The more I look at credit debt, student loan debt, and fairly recently CDO's (Collateralized Debt Obligation) that banks are doing again we are setting ourselves up for failure again.
As long as credit card debt is rated properly, its acquirers know exactly what they're signing up for, and at certain point will exhaust the resources they're ready to pour into junk-level securities (or at least be somewhat contained by the public's appetite for junk).
The subprime mortgages propelled into the prime markets only after a major insurer with a strong balance sheet announced that they will make their investors whole in an [unlikely] event of a default, which led to ratings' agencies decision to assign the AAA rating.
Without AAA, such securities are relegated to their own little corner of the market, which sooner or later faces capital constraints.
It's actually substantially different. Most importantly, it's much hard to paper over shoddy lending practices with credit cards.
If you give a subprime borrower a mortgage and the market continues to go up, they can pay it back with the gains from selling the house. On paper, it looks like everybody won.
With credit cards however, the owner eventually does have to pay the debt back. If you're too loose with handing out credit cards, it's easy to end up with a bunch of people defaulting.
Plus, the scales are an order of magnitude different. Moreover, credit card debt isn't tied to the rest of the economy as heavily as mortgages are.
Given that this is > $12,000 for a family of four, I'm guessing that it's not that much less, and at least half of it is carried over month to month, if not more.
Mean (not median) household income in the US is $70k, I saw one source that it's more like 100-110 for married households with children.
It is literally impossible for those families to pay off a $12k balance every month. Factor in that you often can't pay rent, mortgage or car payments from a credit card and it's not even close.
(The fact that you save up and spend and then pay 10-12k in one month is irrelevant. Because of aggregation, what's relevant is your average month).
I've had this conversation a good few times and I quite like "could care less" - to me it implies more choice on the part of the speaker. I COULD care less. I have that capacity. I actively choose not to.
Although this is definitely not how people usually use it.
There are ways to justify it, like this, or the way I thought for a while which is that it's sarcastic. But I'm pretty sure it's just a corrupted idiom. People say "could care less" and mean "couldn't care less" but they don't connect the sounds with the meaning anymore. It's turned into an eggcorn.
Is there an example where that would make sense? Not trying to be a jerk, just can't think of one. Whenever I've heard the phrase it's basically meant "Doesn't care at all", a.k.a couldn't care less.
The entire spirit of the phrase is to denote how little someone cares about something. So if you say they could care less, that implies they care a tiny amount about it and CHOOSE to care that much. I don't see how that could ever replace the original phrase and still make sense.
I've always seen it as a pithy kind of humor, which it seems most other people either miss or disagree with.
"I could care less! (Yet here we are discussing it to death.)" or "They could care less... (less than we do / less than all this discussion suggests they might care)"
^ I think that's essentially how most people use it, mechanically, without thinking about it as much.
When I say it, I usually either mean it that way, or something along the lines of "I could care less! (And I wish I did!)"
"I've had this conversation a good few times and I quite like "could care less" - to me it implies more choice on the part of the speaker. I COULD care less. I have that capacity. I actively choose not to."
I downvoted you because it goes against the way I think. While I accept the basis of solipsism, it's simply not a practical way to live one's life.
However, language is not math, and adhering and enforcing rigid definitions might pave the path to newspeak. So after having thought about it, I regret downvoting you.
I really appreciate your perspective. The internet makes it too easy to "fire and forget." I hadn't even considered my own opinion in the way in which you framed it. Thank you.
Since you're being pedantic, you might want to go back and change that to "weren't" instead of "wasn't," as it is a hypothetical supposition. (And yet, I agree with you.)
(please no one comment on the comma inside the quotes. I think we're at this awkward point in grammar history where we're seeing a transition from "all punctuation must be inside the quotes" to "sometimes it really really doesn't make sense for the punctuation to be inside the quote, especially if you're not quoting a person saying a full phrase.")
I've read that that transition has already occurred in British English.
In any case, I don't hesitate to put the comma outside the quotes if that makes sense to me, though it's not considered correct in American usage (and I'm in the US). This is one point on which I agree with the Brits; now if we could just get them to change -ise back to -ize :-)
(The "punctuation inside / outside quotes" is something I think about in my writing nearly daily. It's nice to know somebody else thinks about it, too.)
The initial usage is correct; credit card companies could care less about customers who pay off their balances every month, because such customers generate negligible revenue and are thus on the whole a nuisance.
If credit card processing fees are so high as to encourage small businesses to refuse payment by credit cards unless the total exceeds a minimum sum, I would hardly call that revenue "negligible." Otherwise, there would be no reason to offer (paltry) "rewards" points.
Not to mention, people who regularly pay off their card in full are more able to spend far more than than their credit limit in a given month.
"Rewards" points aren't paltry. A good card allows "points" to be redeemed directly for actual cash and 2% to 5% adds up to a nice chunk even on non-extravagant expenditures. It usually exceeds the pay with cash incentive that some firms (gas stations especially) try to entice with -- a rewards card will give you 3% CB for gas. The best rewards are reaped by those that pay their balance as early as possible and have the best credit. Paying your balance in full improves your credit score, since it keeps your debt-to-credit level low.
And it is not true that those that regularly pay can spend more than their credit limit. After years of no balance carrying and numerous cards one accumulates a credit limit that would drain their savings whatever it was ($100ks). Unless you think millionaires are the only ones that pay their balance in full. I somehow managed to pay in full when I earned minimum wage.
CC companies are fine with non-balance carriers, because the conversion rate to balance carriers is quite high. A few of us just don't spend what they don't have.
You're right, of course; I failed to remember that credit card issuers make money on both sides of the transaction. What I should've said is that customers who pay off every month generate negligible interest revenue, which makes them less valuable than those who revolve balances.
Best part is credit card debt is typically unsecured - spend, consume, enjoy, stick up middle finger when repayment is due. Those who do repay will of course sub those who don't over the long course in the variable rates and fees.
Sticking up a middle finger will trash your credit rating and make it impossible to get a mortgage.
In the UK you'll also be put through collections, which can include attempts to force you to sell a property - if you own one - and/or most of your possessions to repay the debt.
Credit cards may not be secured, but lenders have risk management divisions who make some attempt to estimate default rates.
The biggest problem is the ridiculous rates for the riskiest borrowers. A few cards have an APR of 99.9%, which guarantees a default for anyone on a low income who has to make an unexpected payment for any reason at all.
> Sticking up a middle finger will trash your credit rating and make it impossible to get a mortgage.
I walked away from an underwater mortgage on a townhouse. It only caused my dropped my credit score ~100 points, and was eligible for another mortgage after 3 years (My credit card provider didn't blink, and had no problem allowing me to keep a charge card with high five figures of credit available).
The repercussions of credit default are highly overrated.
My experience says otherwise (without going into detail). Consumer protections against creditors/debt collectors in the US are stronger than in the UK.
I think what they're saying is that the bank exercised their lien and claimed the mortgaged property, whereas card debt is unsecured and there's no collateral to claim.
That's incredible. I wonder how typical your experience is. I've considered this strategy on a home we are forced to rent at a loss, as we'd be unable to sell. But I couldn't bring myself to do it.
At the time, I was backed into a corner so to say. It wasn't something I went into willingly.
My HOA would not allow me to rent the townhouse out (too many rentals already), nor could I come up with the $150K to bring the mortgage down to the new fair market value. So, mailed the keys back to the bank and walked away.
> My HOA would not allow my to rent the townhouse out (too many rentals already), nor could I come up with the $150K to bring the mortgage down to the new fair market value. So, mailed the keys back to the bank and walked away.
Note that this doesn't actually work to reduce your debt everywhere (even everywhere in the US); its basically voluntarily inviting the bank to foreclose, which they usually will do (because if you are abandoning the property and they don't, the longer they go before foreclosure the more likely that, just due to being abandoned, the property will lose more value.) But when they do foreclose, some jurisdictions allow foreclosure deficiencies -- that is, they allow the conversion of the amount of the mortgage debt that the lender doesn't recover in a foreclosure sale to be collected as an unsecured debt.
I went through a bankruptcy about 10 years ago, mostly stupid credit card debt I ran up in my early twenties. I paid for everything with cash for years after that and having a poor credit rating barely impacted my life. I have credit up near 800 now and the bankruptcy is still on my record for another couple of years. Other than a few months after my wedding and honeymoon, I haven't carried a balance for years.
Err, what a terrible idea. That might work once, sure. Then you're pretty fucked for a long time. The only way to avoid the collections would be to full on declare bankruptcy.
Honestly there's basically no situation in which that's a good idea unless you're actually bankrupt.
Depending on amount owed, this may not be true. Any unsecured default under ~$10k, the only consequences are usually a credit report hit and incessant calls from debt collector call center workers.
Over ~$10k, and yes, you're talking attorneys, judgments, garnishments, etc.
Hah. I got divorced. I got served a while back over a joint debt that got overlooked. The principal was $1,050.
The firm had also tacked on $2,000 in "preparation and legal costs, filing fees". Which is pretty rich for what likely amounted to a mail merge in Word. But it's no coincidence that most collection firms are owned by lawyers.
> Best part is credit card debt is typically unsecured - spend, consume, enjoy, stick up middle finger when repayment is due. Those who do repay will of course sub those who don't over the long course in the variable rates and fees.
Those that pay it off entirely every month are the one's being subsidized. It's effectively an interest free loan for 30 days. Plus you get 1-2% back as "rewards". That's what contributes to the ~3% transaction costs for credit cards.
I typically have an outstanding balance in the 3-4 figures on my credit card because I pay for rent, gas, and airline tickets with credit. However, it gets paid off every month. I guess that's technically debt, but it's not problematic or anything...
I feel like the majority of credit card debt is the type of "debt" that I incur every month.