5 ms·

You can buy things you don't need, and you can buy things with money you don't have, but doing both at the same time is a really bad idea.

StavrosK 16y ago
Ah, yes. That's what I meant, good catch.
- randrews 16y ago
  It's always been my rule. :) If I've had to put groceries (or whatever) on a credit card, I'm not also buying a video game that month.
  - StavrosK 16y ago
    I think it's pretty safe to say that the people in debt don't know about this rule :/
Retric 16y ago
The most useful way of thinking of CC debt is how much it INCREASES THE PRICE of what you buy. That nice lunch might cost 20$ if you paid cash, but use your CC and it's really 20$ + the interest you are going to pay. If it's going to take you 4 years to pay off your 20% APR CC debt then that 20$ lunch is really 41$ 50c. PS: That is not to say paying cash for lunch changes the numbers when you are in debt; CC increases the cost of "everything" you buy without exception.
- dalore 16y ago
  If you pay it off in full, and get 2% cashback then that lunch cost you $19.60
  - meterplech 16y ago
    You know, obviously you are right. But, I think people (especially intelligent HN type people) greatly underestimate how much psychological tricks affect them. I know deep down that spending with credit card is the same as spending with cash. But, I tracked my spending using cards and only withdrawing from ATMs and using cash. I spent about 20% more. And my life didn't feel any better or anything. Now I use credit cards on the big stuff- like travel, transportation costs, and other large ticket items where credit versus cash is unlikely to affect me spending habits. Point is, you get some tiny cash back, but I think for 99% of people you spend more than you get.
    - yummyfajitas 16y ago
      I find it's easier to track spending by credit card. I download a csv of my transactions, import into ledger (https://github.com/jwiegley/ledger/wiki/ https://github.com/jwiegley/ledger/wiki/ it's like mint, but for the command line), then just "ledger balance --cost expenses". All my CC transactions are labelled ("expenses:entertainment:bar", "expenses:computer:github"), then I have a big black box: "expenses:cash".
    - mattm 16y ago
      This is actually the reason McDonald's started taking credit cards. Studies find this again and again that people buy more when putting it on their credit card. Do you think giving 2% cash back is just the credit card companies being generous? They are making way more through that scheme. Plus, those cash-back cards generally take a higher percentage which will lead to higher prices to compensate.
    - dalore 16y ago
      I'm the opposite, when I withdraw cash and spend it, I have no idea where it went. When it is electronic, then my weekly accounting will show me where I've been spending money and I'm more careful with it. The best thing I ever did to save money was to track where I'm spending it.
  - macov 16y ago
    Or 5% cashback sometimes (look at Discover More etc).
    - dalore 16y ago
      Those 5% deals are generally time limited. Also not available in every country.
  - jpadvo 16y ago
    But only because the credit card company charges merchants an unnecessary extra 2% in fees so they can bribe you with your own money. The cost of that lunch should be $19.60, or less.
  - Retric 16y ago
    Debit cards also give cash back.
- gcheong 16y ago
  It helps to know that but the problem is that you don't really feel the weight of the extra cost as we tend to discount the importance of things we see as being off in the future. Sure that dinner is going to ultimately cost me $41 but that's spread out between next month and 4 years from now whereas getting that dinner now gives you an immediate reward and our brains are wired to weight immediate rewards more heavily.
joe_the_user 16y ago
By say, taking out student loans? Considering that this is pretty much the primary way that education is paid for these days, simply repeating "debt is a bad idea" hardly seems adequate. (and I am personally happy to be debt-free but I can see why my indebted friends made the choices they did, however badly they may have worked out).
- deleted 16y ago
  [deleted]
- nostrademons 16y ago
  Unless you're going to a top-tier college and majoring in a marketable skill, that is a bad idea too. There's a bubble in higher education where many people are being promised a good life merely by going to college. These people get out of college, find out that such a good life was just a mirage, and then find out that the $200K in debt they took on for it wasn't such a great idea either. The responsible thing to do there is to just say no. Don't go to college, and find ways to prove that you can add value to people without that college degree.
  - ramchip 16y ago
    > The responsible thing to do there is to just say no. Or just go to a college that doesn't charge $200k in fees?
    - nostrademons 16y ago
      That works too, if there are any left. Actually, a bunch of top colleges will give you a full ride if you're under a certain income, so if you get one of those packages, take it.
      - ramchip 16y ago
        Well, I'm in Quebec, so a BEng at a very good university like McGill costs less than $4k a year, all fees and insurance included. Granted, the US appears to be more expensive.

StavrosK 16y ago

Ah, yes. That's what I meant, good catch.

randrews 16y ago
It's always been my rule. :) If I've had to put groceries (or whatever) on a credit card, I'm not also buying a video game that month.
- StavrosK 16y ago
  I think it's pretty safe to say that the people in debt don't know about this rule :/

Retric 16y ago

The most useful way of thinking of CC debt is how much it INCREASES THE PRICE of what you buy. That nice lunch might cost 20$ if you paid cash, but use your CC and it's really 20$ + the interest you are going to pay. If it's going to take you 4 years to pay off your 20% APR CC debt then that 20$ lunch is really 41$ 50c. PS: That is not to say paying cash for lunch changes the numbers when you are in debt; CC increases the cost of "everything" you buy without exception.

dalore 16y ago
If you pay it off in full, and get 2% cashback then that lunch cost you $19.60
- meterplech 16y ago
  You know, obviously you are right. But, I think people (especially intelligent HN type people) greatly underestimate how much psychological tricks affect them. I know deep down that spending with credit card is the same as spending with cash. But, I tracked my spending using cards and only withdrawing from ATMs and using cash. I spent about 20% more. And my life didn't feel any better or anything. Now I use credit cards on the big stuff- like travel, transportation costs, and other large ticket items where credit versus cash is unlikely to affect me spending habits. Point is, you get some tiny cash back, but I think for 99% of people you spend more than you get.
  - yummyfajitas 16y ago
    I find it's easier to track spending by credit card. I download a csv of my transactions, import into ledger (https://github.com/jwiegley/ledger/wiki/ https://github.com/jwiegley/ledger/wiki/ it's like mint, but for the command line), then just "ledger balance --cost expenses". All my CC transactions are labelled ("expenses:entertainment:bar", "expenses:computer:github"), then I have a big black box: "expenses:cash".
  - mattm 16y ago
    This is actually the reason McDonald's started taking credit cards. Studies find this again and again that people buy more when putting it on their credit card. Do you think giving 2% cash back is just the credit card companies being generous? They are making way more through that scheme. Plus, those cash-back cards generally take a higher percentage which will lead to higher prices to compensate.
  - dalore 16y ago
    I'm the opposite, when I withdraw cash and spend it, I have no idea where it went. When it is electronic, then my weekly accounting will show me where I've been spending money and I'm more careful with it. The best thing I ever did to save money was to track where I'm spending it.
- macov 16y ago
  Or 5% cashback sometimes (look at Discover More etc).
  - dalore 16y ago
    Those 5% deals are generally time limited. Also not available in every country.
- jpadvo 16y ago
  But only because the credit card company charges merchants an unnecessary extra 2% in fees so they can bribe you with your own money. The cost of that lunch should be $19.60, or less.
- Retric 16y ago
  Debit cards also give cash back.
gcheong 16y ago
It helps to know that but the problem is that you don't really feel the weight of the extra cost as we tend to discount the importance of things we see as being off in the future. Sure that dinner is going to ultimately cost me $41 but that's spread out between next month and 4 years from now whereas getting that dinner now gives you an immediate reward and our brains are wired to weight immediate rewards more heavily.

joe_the_user 16y ago

By say, taking out student loans? Considering that this is pretty much the primary way that education is paid for these days, simply repeating "debt is a bad idea" hardly seems adequate. (and I am personally happy to be debt-free but I can see why my indebted friends made the choices they did, however badly they may have worked out).

deleted 16y ago
[deleted]
nostrademons 16y ago
Unless you're going to a top-tier college and majoring in a marketable skill, that is a bad idea too. There's a bubble in higher education where many people are being promised a good life merely by going to college. These people get out of college, find out that such a good life was just a mirage, and then find out that the $200K in debt they took on for it wasn't such a great idea either. The responsible thing to do there is to just say no. Don't go to college, and find ways to prove that you can add value to people without that college degree.
- ramchip 16y ago
  > The responsible thing to do there is to just say no. Or just go to a college that doesn't charge $200k in fees?
  - nostrademons 16y ago
    That works too, if there are any left. Actually, a bunch of top colleges will give you a full ride if you're under a certain income, so if you get one of those packages, take it.
    - ramchip 16y ago
      Well, I'm in Quebec, so a BEng at a very good university like McGill costs less than $4k a year, all fees and insurance included. Granted, the US appears to be more expensive.