4 ms·

Credit card debt in the U.S. alone hit 1 Trillion https://www.cnet.com/personal-finance/credit-cards/credit-card-debt-in-the-us-hits-1-trillion-for-the-first-ti

by judge2020 3y ago

Credit card debt in the U.S. alone hit 1 Trillion https://www.cnet.com/personal-finance/credit-cards/credit-card-debt-in-the-us-hits-1-trillion-for-the-first-time-ever/ https://www.cnet.com/personal-finance/credit-cards/credit-ca...

WalterBright 3y ago
This can be a misleading statistic. A lot of people use credit cards as a substitute for cash, and pay off the balance every month. This is accounted as "debt" but in a practical sense it is not. Me, I use the credit card as a 6 week interest-free loan, plus getting the cash back discount.
- djbusby 3y ago
  I thought the Fed only counted the carried balance. So folks who pay in full every month are not counted. I did a quick search but couldn't find anything definitive.
  - judge2020 3y ago
    I was able to find it by going from the cnet article to to the Fed's press release, then to the report, then the 'downloads' button, then the PDF[0]. in it: > Credit utilization rates (for revolving accounts). Computed as proportion of available credit in use (outstanding balance divided by credit limit), and for reasons discussed above are likely to overestimate actual credit utilization. 0: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q2 https://www.newyorkfed.org/medialibrary/interactives/househo...
  - prepend 3y ago
    I would expect that they are only able to see the current balance. For me, I charge and pay every month so never pay interest. But my credit report always shows a 2-5k balance (or whatever I charged). Theoretically, if I paid off the balance BEFORE my statement period ends it would show $0, but I never do this because I have 25 days of 0% interest to pay, so I do. I don’t think credit reports track interest paid but that would be one way to track if it’s “real” credit card debt or people just cycling. But also you could look at average. I average $3k over the past 10-30 years or whatever. If this increased to some new stable level it would mean an increase in income. But if it increased at some rate or increased sporadically then it means I’m taking on more debt. So I expect if credit card debt increases in total it probably means more debt and not more people paying their balance in full each month.
    - WalterBright 3y ago
      Or it means inflation. I've also had credit report hiccups because of the "debt" on my credit card.
- latchkey 3y ago
  Do you do anything with the funds during those 6 weeks?
  - WalterBright 3y ago
    I invest it. Occasionally the CC company will send me an offer of a loan for very low interest for a year. I run the numbers, and if it looks good, I'll take the loan and invest the money, and pay it back at the end of the term. The CC company, of course, is hoping I'll miss payments so they can charge me 30% interest. I disappoint them. Being aware of the time value of money is essential for managing your finances in your own best interest.
    - latchkey 3y ago
      > Occasionally the CC company will send me an offer of a loan for very low interest for a year. I run the numbers, and if it looks good, I'll take the loan and invest the money, and pay it back at the end of the term. How do you keep that from negatively impacting your credit rating?
      - prepend 3y ago
        I’m not OP, but it I do this. Sometimes it negatively impacts a little but it’s worth it (800 vs 795 doesn’t matter too much) but usually it’s a wash because it’s $5 down in one account and $5k more in another. But when you have $100k of available balance and $10k of debt, the credit bureaus don’t change much when you have $100k of available balance and $20k of debt for 15 months (or whatever the term is). Now you can easily get 5% returns in money market accounts so if you take a 0% loan with a 3 percent transfer fee on $10k you can basically get $200 for “free” for the juggling. You have to determine if it’s worth it, but if you have larger amounts maybe it’s $500-2k for effectively setting some reminders and not screwing up.
        WalterBright 3y ago
        Even if the amounts aren't that large, it's good practice. I once read an article on how Amazon made money selling items at wholesale prices. The answer is astute money management. When you bought an item, Amazon charges your credit card immediately, and they get the funds right away. Amazon does not pay the vendor, however, until 90 days have elapsed. This means they have the use of the money for 90 days, and (of course) they invest the money. Multiply this over millions of purchases, and you're making a boatload of moolah. I do the same thing, it's just on a very small scale. It's called working the float. Banks do it, too. Ever notice that when you get a cashier's check, your account is debited immediately? But if you deposit a cashier's check, you have to wait a day or two for the credit. The bank is doing the same thing.
- jjav 3y ago
  > This can be a misleading statistic. A lot of people use credit cards as a substitute for cash, and pay off the balance every month. This is accounted as "debt" but in a practical sense it is not. Indeed, this is annoying nonsensical. They should not count credit card balance as debt until it has rolled over at least one payment cycle. Every summer my credit score drops ~40-50 points when I put the upcoming school year payment on the credit card (they give a nice-enough discount for prepaying) and then a month later bounces right back up after I pay it.

WalterBright 3y ago

This can be a misleading statistic. A lot of people use credit cards as a substitute for cash, and pay off the balance every month. This is accounted as "debt" but in a practical sense it is not. Me, I use the credit card as a 6 week interest-free loan, plus getting the cash back discount.

djbusby 3y ago
I thought the Fed only counted the carried balance. So folks who pay in full every month are not counted. I did a quick search but couldn't find anything definitive.
- judge2020 3y ago
  I was able to find it by going from the cnet article to to the Fed's press release, then to the report, then the 'downloads' button, then the PDF[0]. in it: > Credit utilization rates (for revolving accounts). Computed as proportion of available credit in use (outstanding balance divided by credit limit), and for reasons discussed above are likely to overestimate actual credit utilization. 0: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q2 https://www.newyorkfed.org/medialibrary/interactives/househo...
- prepend 3y ago
  I would expect that they are only able to see the current balance. For me, I charge and pay every month so never pay interest. But my credit report always shows a 2-5k balance (or whatever I charged). Theoretically, if I paid off the balance BEFORE my statement period ends it would show $0, but I never do this because I have 25 days of 0% interest to pay, so I do. I don’t think credit reports track interest paid but that would be one way to track if it’s “real” credit card debt or people just cycling. But also you could look at average. I average $3k over the past 10-30 years or whatever. If this increased to some new stable level it would mean an increase in income. But if it increased at some rate or increased sporadically then it means I’m taking on more debt. So I expect if credit card debt increases in total it probably means more debt and not more people paying their balance in full each month.
  - WalterBright 3y ago
    Or it means inflation. I've also had credit report hiccups because of the "debt" on my credit card.
latchkey 3y ago
Do you do anything with the funds during those 6 weeks?
- WalterBright 3y ago
  I invest it. Occasionally the CC company will send me an offer of a loan for very low interest for a year. I run the numbers, and if it looks good, I'll take the loan and invest the money, and pay it back at the end of the term. The CC company, of course, is hoping I'll miss payments so they can charge me 30% interest. I disappoint them. Being aware of the time value of money is essential for managing your finances in your own best interest.
  - latchkey 3y ago
    > Occasionally the CC company will send me an offer of a loan for very low interest for a year. I run the numbers, and if it looks good, I'll take the loan and invest the money, and pay it back at the end of the term. How do you keep that from negatively impacting your credit rating?
    - prepend 3y ago
      I’m not OP, but it I do this. Sometimes it negatively impacts a little but it’s worth it (800 vs 795 doesn’t matter too much) but usually it’s a wash because it’s $5 down in one account and $5k more in another. But when you have $100k of available balance and $10k of debt, the credit bureaus don’t change much when you have $100k of available balance and $20k of debt for 15 months (or whatever the term is). Now you can easily get 5% returns in money market accounts so if you take a 0% loan with a 3 percent transfer fee on $10k you can basically get $200 for “free” for the juggling. You have to determine if it’s worth it, but if you have larger amounts maybe it’s $500-2k for effectively setting some reminders and not screwing up.
      - WalterBright 3y ago
        Even if the amounts aren't that large, it's good practice. I once read an article on how Amazon made money selling items at wholesale prices. The answer is astute money management. When you bought an item, Amazon charges your credit card immediately, and they get the funds right away. Amazon does not pay the vendor, however, until 90 days have elapsed. This means they have the use of the money for 90 days, and (of course) they invest the money. Multiply this over millions of purchases, and you're making a boatload of moolah. I do the same thing, it's just on a very small scale. It's called working the float. Banks do it, too. Ever notice that when you get a cashier's check, your account is debited immediately? But if you deposit a cashier's check, you have to wait a day or two for the credit. The bank is doing the same thing.
jjav 3y ago
> This can be a misleading statistic. A lot of people use credit cards as a substitute for cash, and pay off the balance every month. This is accounted as "debt" but in a practical sense it is not. Indeed, this is annoying nonsensical. They should not count credit card balance as debt until it has rolled over at least one payment cycle. Every summer my credit score drops ~40-50 points when I put the upcoming school year payment on the credit card (they give a nice-enough discount for prepaying) and then a month later bounces right back up after I pay it.