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> 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. In 201

by zrail 11y ago

> 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. In 2014 only 34% of households carried credit card debt month to month[1]. The majority of households pay it off every month, simply using it to smooth out irregular cash flow while potentially racking up rewards. They're not purchasing an asset, per se, unless you count the rewards and the tiny amount of bank interest they may receive. [1]: http://www.creditcards.com/credit-card-news/credit-card-debt-statistics-1276.php http://www.creditcards.com/credit-card-news/credit-card-debt...

Roodgorf 11y ago
Wouldn't being able to continue your life unobstructed by the need for some potential purchases be an asset in the same way the parent described student or car loans as potential assets? If something comes up outside your usual cash flow, say a tire blows, and smoothing out that irregularity helps you keep your job, I would consider that a worthwhile investment.
- zrail 11y ago
  Student and car loans are not assets. They are debts used to finance assets.
gtk40 11y ago
I don't even think of myself as using debt. I see credit cards as a way to get an extra $50-70 a month in rewards[1] and increase my credit score. I have never paid a cent of interest. [1] I have a card that gives me 5% cashback in gas, groceries, and books up to a limit that does not often surpass what I spend and some rotating 5% cash back cards, in addition to a 2% general spend. I do not pay any annual fees for using the cards.
- zrail 11y ago
  Interesting. What card is this?
  - gtk40 11y ago
    Several different cards. Sallie Mae Rewards MC from MC (sadly discontinued recently for new signups), Discover It, Chase Freedom, and Double Cash from Citi.
  - maxsilver 11y ago
    American Express has a card "Blue Cash Preferred". You get 6% back on Groceries (up to $6k/yr), 3% back on gas, and the card has a $75 annual fee. If you only use the card to spend $100/week on Groceries, you get $312 in cashback rewards. Subtract the $75/yr fee, and Amex paid you $237 to use their card that year. (Amex isn't the only card like this -- there's lots from MasterCard and Visa as well. This card in particular just happens to be one of the rewards cards that I know the details of.)
    - infinite8s 11y ago
      I don't understand these reward schemes. Surely they are being funded by higher merchant fees, which means merchants charge more, which just means that the rewards are a transfer scheme between people who pay by cash/unrewarded cards and those with rewards cards.
      - maxsilver 11y ago
        There's a lot of truth to that (cash paying customers pay the same, even though the cost to serve them is less). But unrewarded cards aren't really any different. Most merchants still have to pay the same high fee for them. Since the bank/processor is going to take the maximum amount of money they can regardless, and most merchants will have to pay that full fee regardless, you might as well use a rewards card over an unrewarded one.
        aspratley 11y ago
        Handling cash isn't free for a merchant. It has to be stored, counted, transported, banked, insured and it's easily stolen. Even though the fees aren't the same cash still has a fee.
Kurtz79 11y ago
"Only" 34% ? I imagine it is still a huge amount in absolute terms.
- pc86 11y ago
  Yes, 34% of households is a lot of households. But part of the point of the article is that most people do not handle their debt well, however, most people with credit cards do not carry credit card debt month to month. It doesn't mean the article is wrong but it is certainly a point against the article's thesis.
crystalmeph 11y ago
I'm not well versed in the history of consumer debt, but 34% carrying month-to-month debt seems historically high, since consumer credit cards were only widely introduced in the mid-20th century[1], and took a few decades to reach mass penetration. The page you linked to shows that even the events of 2008-2009 didn't set people back from expanding their personal debt, which is surprising to me. Given our fairly short history with widespread revolving debt, we might be setting ourselves up for another, bigger, debt crash that the government won't be able to bail out. Of course, revolving debt does have a longer history than that, but it was often used as a "barely-there" facade for stealing money from the poor, e.g. coal miners living in a company town weren't paid enough to buy food at the company store, so they ended up in life-debt to their supposed employer. Of course, in that scenario, the company made money even if the coal miner died without paying them back the full amount they owed. These days, companies trade consumer debt like it's real money, and get in actual trouble when the music stops. [1]http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php http://www.creditcards.com/credit-card-news/credit-cards-his...
- zrail 11y ago
  > The page you linked to shows that even the events of 2008-2009 didn't set people back from expanding their personal debt, which is surprising to me. The page I linked, under the heading "Transactors versus revolvers," presents a chart that shows the percentage of households with revolving debt declining from 44% in 2009 to 34% in 2014. A 22% decrease over five years is rather significant, no?
  - crystalmeph 11y ago
    Interesting. I was looking at the total debt, the first graph in the article. So fewer people carry month-to-month, but the total dollar amount of revolving debt is still going up. It is good that fewer people carry it, but it still looks like a significant portion of the population is increasing their debt level.
encoderer 11y ago
My understanding is that about 75% of households use credit cards. So, that's about half of them.
heywire 11y ago
I wonder if this counts households which are carrying balances on cards which offer an introductory 0% interest rate? I know quite a few people (myself included) who have utilized the 0% intro rates offered by both branded (Visa/MC/Amex) and store credit cards.

by zrail 11y ago

Roodgorf 11y ago

Wouldn't being able to continue your life unobstructed by the need for some potential purchases be an asset in the same way the parent described student or car loans as potential assets? If something comes up outside your usual cash flow, say a tire blows, and smoothing out that irregularity helps you keep your job, I would consider that a worthwhile investment.

zrail 11y ago
Student and car loans are not assets. They are debts used to finance assets.

gtk40 11y ago

I don't even think of myself as using debt. I see credit cards as a way to get an extra $50-70 a month in rewards[1] and increase my credit score. I have never paid a cent of interest. [1] I have a card that gives me 5% cashback in gas, groceries, and books up to a limit that does not often surpass what I spend and some rotating 5% cash back cards, in addition to a 2% general spend. I do not pay any annual fees for using the cards.

zrail 11y ago
Interesting. What card is this?
- gtk40 11y ago
  Several different cards. Sallie Mae Rewards MC from MC (sadly discontinued recently for new signups), Discover It, Chase Freedom, and Double Cash from Citi.
- maxsilver 11y ago
  American Express has a card "Blue Cash Preferred". You get 6% back on Groceries (up to $6k/yr), 3% back on gas, and the card has a $75 annual fee. If you only use the card to spend $100/week on Groceries, you get $312 in cashback rewards. Subtract the $75/yr fee, and Amex paid you $237 to use their card that year. (Amex isn't the only card like this -- there's lots from MasterCard and Visa as well. This card in particular just happens to be one of the rewards cards that I know the details of.)
  - infinite8s 11y ago
    I don't understand these reward schemes. Surely they are being funded by higher merchant fees, which means merchants charge more, which just means that the rewards are a transfer scheme between people who pay by cash/unrewarded cards and those with rewards cards.
    - maxsilver 11y ago
      There's a lot of truth to that (cash paying customers pay the same, even though the cost to serve them is less). But unrewarded cards aren't really any different. Most merchants still have to pay the same high fee for them. Since the bank/processor is going to take the maximum amount of money they can regardless, and most merchants will have to pay that full fee regardless, you might as well use a rewards card over an unrewarded one.
      - aspratley 11y ago
        Handling cash isn't free for a merchant. It has to be stored, counted, transported, banked, insured and it's easily stolen. Even though the fees aren't the same cash still has a fee.

Kurtz79 11y ago

"Only" 34% ? I imagine it is still a huge amount in absolute terms.

pc86 11y ago
Yes, 34% of households is a lot of households. But part of the point of the article is that most people do not handle their debt well, however, most people with credit cards do not carry credit card debt month to month. It doesn't mean the article is wrong but it is certainly a point against the article's thesis.

crystalmeph 11y ago

I'm not well versed in the history of consumer debt, but 34% carrying month-to-month debt seems historically high, since consumer credit cards were only widely introduced in the mid-20th century[1], and took a few decades to reach mass penetration. The page you linked to shows that even the events of 2008-2009 didn't set people back from expanding their personal debt, which is surprising to me. Given our fairly short history with widespread revolving debt, we might be setting ourselves up for another, bigger, debt crash that the government won't be able to bail out. Of course, revolving debt does have a longer history than that, but it was often used as a "barely-there" facade for stealing money from the poor, e.g. coal miners living in a company town weren't paid enough to buy food at the company store, so they ended up in life-debt to their supposed employer. Of course, in that scenario, the company made money even if the coal miner died without paying them back the full amount they owed. These days, companies trade consumer debt like it's real money, and get in actual trouble when the music stops. [1]http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php http://www.creditcards.com/credit-card-news/credit-cards-his...

zrail 11y ago
> The page you linked to shows that even the events of 2008-2009 didn't set people back from expanding their personal debt, which is surprising to me. The page I linked, under the heading "Transactors versus revolvers," presents a chart that shows the percentage of households with revolving debt declining from 44% in 2009 to 34% in 2014. A 22% decrease over five years is rather significant, no?
- crystalmeph 11y ago
  Interesting. I was looking at the total debt, the first graph in the article. So fewer people carry month-to-month, but the total dollar amount of revolving debt is still going up. It is good that fewer people carry it, but it still looks like a significant portion of the population is increasing their debt level.

encoderer 11y ago

My understanding is that about 75% of households use credit cards. So, that's about half of them.

heywire 11y ago

I wonder if this counts households which are carrying balances on cards which offer an introductory 0% interest rate? I know quite a few people (myself included) who have utilized the 0% intro rates offered by both branded (Visa/MC/Amex) and store credit cards.