No Go says SWMBO

[nathan]

paying off our credit cards was the biggest and best step we ever made to becoming better off financially. Now we just use debit cards and only buy what we can afford with what's in the account. It was very tough getting there, but now we are doing great!

In fact, I just got the okay to order a b3 sculpture later this summer when I've got the funds saved up! It's a good motivator for me to save money!

 

[jrm16311]

Sorry man, I am on her side according to this.

Come on men! Headquarters would have your heads for taking sides "against the family" on this one!

Fredo!

LOL

 

[auto]

Definitely, not a Dave fan, then again the way I live does not work for everyone. Debt is is good if your ROI on that cash is better than the interest rate you are paying. Don't owe on any card, except for the monthly AMEX bill.

 

[Philip1993]

Debt is is good if your ROI on that cash is better than the interest rate you are paying.

Debt is bad if you value the time you spend with family more than the time you spend with Quicken...

 

[auto]

Debt is bad if you value the time you spend with family more than the time you spend with Quicken...

Wouldn't dream of owning Quicken. Not really tough to know what your portfolio vs. the cost of capital.

 

[Philip1993]

Wouldn't dream of owning Quicken. Not really tough to know what your portfolio vs. the cost of capital.

Quicken was just a metaphor for the processes necessary to service the various debts.

I completely understand the power of using leverage to maximize ROI on capital. I also understand that any strategy involving debt carries with it a certain amount of inherent risk. IMHO, the few hundred dollars gained playing the spread is not worth putting the stability of the family finances into play.

Scenario A; Its' one year ago and you have $30k in cash. You can buy a car or you can invest it. You elected to invest because car loans are 7%, and the market averages 12%. Because of the lower cost of capital, you are making $1500/yr over and above the car payment. Two years pass and recession (or whatever this is) hits. Subsequently, you are laid off. You remain unemployed for 6 months and cash is now at a premium. The car (complete with $500 payment) is under water and you cannot sell it without incurring a loss. You can sell the securities, but they are down 25% from last year (a $7500 loss). Desperate, you sell the securities for $22,500 and pay off the car. Two weeks later, the transmission dies ($2000) Final outcome: $30k gone, $2000 in add'l debt, but no car payment.

Scenario B: You pay $30,000 for the same car. Having no car payment, you pay the same $500/mo into a fund for the next car. Two years pass and recession hits. Subsequently, you are laid off. You remain unemployed for 6 months and cash is now at a premium. Two weeks later, the transmission dies ($2000) Final outcome: $30k gone, $10,000 ($12k-2k) in the bank, no car payment.

Given those two scenarios, which is going to create more stress on you and your family? Which forces your decisions, and which frees them? If it happens to you, was it worth the extra $1500/yr?

Don't get me wrong, I am not against investing. I own my own business and have worked damn hard to accumulate a decent net worth, the vast majority of which is in the market (I'm only 40). But I do not invest money I need short term (<5yrs) or place the needs of my family (food, shelter, and lights) at risk to make a few extra %. If I need $125/mo that bad, there are a hundred different ways I can make that on any given Saturday (before noon...) and never jeprodize the stability of my household.

 

[drunkatuw]

Or you could buy a used car for $10k and the brew sculpture you wanted and still have $15,000+ left in the bank!

Just playing devil's advocate.

 

[devaspawn]

+1 on Instawares. You can get a 10 gallon 4mm Aluminum stock pot from them for $55 after shipping on their site. They also sell on ebay and i got mine for $45 after shipping.

 

[srm775]

Don't forget that if you're late by one day for any reason, you will pay enough interest to eat up a whole years worth of cash back savings. And if you lose your job (or get injured, etc), that bill will still show up in the mail promptly on the 31st. That's not a risk I'm willing to take for $400/yr.

Well, yeah, I think the approach the op takes is he only puchases what they can afford and pay off every month. You have to buy groceries, gas, etc. Why not increase your purchasing power by using a credit card. It's like they have the purchasing power of a $1.02 for every $.98 they spend.

 

[McKBrew]

The biggest problem with credit cards is that it is so easy to get in the hole, and a PITA to get out. Me and the SWMBO have some (aka quite a bit) of credit card debt. Not enough that I can't afford the payments, and typically we pay a bit above the minimum. Credit scores are average, so we aren't hurting. Sounds manageable, until you are sitting in front of the mortgage broker like we were yesterday, and he let's us know that with our current Debt to income ratio we can't qualify for a home loan.

Talk about a big let-down, but one that we got ourselves into. What really chaps my axx about the whole thing is that I can look around the house and most everything big was paid for with cash, or paid off at one time or another. So having a pile of credit card debt, and having absolutely nothing to show for it really sucks.

I'm sure that I'm not the only one who found out the hard way that credit cards can screw you if you don't use them the right way.

 

[Philip1993]

Why not increase your purchasing power by using a credit card. It's like they have the purchasing power of a $1.02 for every $.98 they spend.

This statement is a testament to the skill and power of professional marketing people.

Did you ever stop to think why Visa is so eager to pay you that 2% cash back? It's simple and brilliant. The answer: because they have millions of dollars worth of research that shows that people who pay with a credit card spend an average of 18% more than people who pay with cash. And that 55-60 percent of Americans carry credit card balances, and less that 13% pay more than half their balance each month. And that the average American is carrying $7500 in balances on credit cards (~$98/mo in interest payment). Put that all together and they are making a killing. Amex alone made $27billion last year.

In a nutshell, they pay 2% cash back because they have found that it is a very effective means of making you think you are paying less, while you are actually paying much more.

As I said before; That's not a game I'm willing to play for a lousy $300-400/yr in freebies.

 

[srm775]

This statement is a testament to the skill and power of professional marketing people.

Did you ever stop to think why Visa is so eager to pay you that 2&#37; cash back? It's simple and brilliant. The answer: because they have millions of dollars worth of research that shows that people who pay with a credit card spend an average of 18% more than people who pay with cash. And that 55-60 percent of Americans carry credit card balances, and less that 13% pay more than half their balance each month. And that the average American is carrying $7500 in balances on credit cards (~$98/mo in interest payment). Put that all together and they are making a killing. Amex alone made $27billion last year.

In a nutshell, they pay 2% cash back because they have found that it is a very effective means of making you think you are paying less, while you are actually paying much more.

If you mean "you" as in the general public, then perhaps. However, it doesn't have to be for everyone. Since I carry exactly 0 balance over to the next month and use it for the stuff that I would buy regardless of whether it was a cash or credit transaction, I'm not paying more. But rather more effectively leveraging my buying power. When paid off every month, it's interest free money.

I.e. if I fill up my tank, I fill it up regardless of the type of transaction (and, it's certainly not like I add 18% more gas). That's the point I'm making, and I believe the other poster was making as well.