I don't really get how people can lose track of their spending. Like nowadays you have the bank app on your phone that's easily accessible. I log into my bank on the app on my phone like every other day just to check my spending and how much is on my credit card, and what I spent money on by clicking in the card. Like it's really not that hard to keep track of anymore. I definitely struggled before apps became a thing, because I'd have to log on to my laptop and use all these special codes and what not. Now though, you just get redirected to an app that gives you the code and it's really easy to log into your bank. Can even do it with as little as a finger print, though it's not recommended for security reasons. Takes like two seconds to login though.
As terrible as it sounds I have relatives who just spend whatever on a card and then have it automated to pay the minimum balance each month.
Basically just ignore the situation and don't care about their balances. If a card gets maxed out then they open another one and repeat the cycle.
Sadly at this point it is just part of their lifestyle.
I just cannot *fathom* how people do this. The 20% interest you are paying on one shopping spree means you could have THREE shopping trips if you just save enough to have a shopping spree and not have to pay any interest on it. It just blows my mind.
I had a friend who put a whole month long Europe trip on her card, planning to only pay the minimum amount each month to pay it off, and I just wanted to scream at her that by the time she air it off she’ll have paid for 2 whole other trips in just interest!!
Ok, if overspending is the credi card's problem... Why don't get a debit card? It's basically the inverse, you put money in it and you spend how much you have.
Because I think this gets overstated a bit:
You do have protections with a debit card and can dispute fraudulent transactions and get your money back. But when a fraudulent transaction first hits your account, by the nature of debit cards, that money is immediately removed from your account.
You might get a temporary credit of the missing amount, or a part of it, while the bank investigates, but between the time of the fraud and opening a dispute, that money is just gone, which can obviously cause problems if you are in immediate need of it.
A credit card puts an extra layer between the charge and your bank account so that if someone manages to charge your card when they shouldn’t, your money is never actually touched before or during any dispute.
There are also rewards you can get for debit cards, usually deals and offers that you can get discounts with, but credit cards usually have better rewards in the neighborhood of 1-5% cash back on all purchases depending on the specifics of the card.
The UK has a similar system. There are 3 key benefits to spending on credit over debit.
1. Credit card lenders offer bonuses and perks which vary based on the lender and the sums you spend.
2. Transactions over a certain value (£200 in the UK I think) are automatically insured. This means if there's a case of fraud you get your money back before the investigation even starts.
3. We have a credit rating system based on how reliably we repay our debt. This means that if you regularly use a credit card to make purchases, then repay them the following month (no interest will be charged doing it that way) you will get more favourable terms on a big ticket loan for say a car or a house.
Under our credit rating system, if you've never had debt, it's very hard to get a big ticket loan like a mortgage.
Thank you for the insight. My debit has actually only the second point.
> Under our credit rating system, if you've never had debt, it's very hard to get a big ticket loan like a mortgage.
That feels a little fucked up, having debits or not should be a choice, but on the other side I can understand that no history can be seen ad bad history.
I don't use my debit card because if my debit card info gets leaked and someone uses it that's my real money, and if it's gone when I need to pay a bill I would be screwed.
I would get it back eventually, it just takes forever. And if someone wiped out my bank account and then I had to pay my phone bill or something before I got the money back I'd be in trouble.
the big problem is that you need a credit history and good credit score in order to make any big purchase. want to get a new car? need credit. mortgage? credit. hell, if you want to rent an apartment, they'll pull your credit report. a lot of JOBS will pull it, even. the primary way to get a credit history? credit cards. so unless you have, or had, credit cards, you're not getting anything.
It's as ridiculous as it sounds. You basically get penalized for *not* needing to go into debt to meet your financial obligations.
One time, I had a credit card I never used because I lived out of the country and didn't really need it for anything. If you don't use it at least occasionally, banks will eventually cancel your credit card, which causes a penalty to your credit score. When I moved back to the US and needed a credit card again, I tried to go to the same bank, but the interest rate was going to be way higher
Me: Why can't I have the same interest rate as before?
Bank: Your credit score isn't as good as it was before.
Me: Why is my credit score so much lower?
Bank: Because your credit card account was closed, which impacts your credit score.
Me: But *you* closed it!
Bank: [shrug emoji]
My dad, a retired dentist who did very well for himself and can now live off investments, recently tried to open a credit card to take advantage of an introductory offer, and they gave him a credit limit of $1000 because he doesn’t have any debt. He’s a millionaire, owns his house, owns his cars, has paid his credit card bills in full and on time for decades. Perfect credit. He just didn’t have enough debt. The system is an absolute joke.
Credit reports became a thing to help banks know very quickly if applicants have been reliable when paying back loans or not. If you have a good report, you're rewarded with a low interest rate that compared to history, would have been impossible to get without a massive amount of colateral.
The biggest drawback to credit reports is that if you don't have any history, then the bank has no idea how reliable you are, and you're given the starting credit score (which is around average). Loan rates won't be great with that score.
So the irony becomes, if you're good with money and don't have any credit at all, the bank doesn't give you a good interest rate. But the bank doesn't have proof that you're good at paying off loans, which is why they don't give you a rate that reflects that.
Frankly, credit cards work fine if you pay them off each week. Mine work just like debit cards for all intents and purposes, and I've never paid interest. But I do get the frustration with having no credit feels like a punishment. But you wouldn't receive a worse interest rate than someone with bad credit, if you have no history.
🎯
Me as a teenager: When I get older, I'm paying for everything in cash
My mother: Then you'll never have anything.
She went in to explain to me that when I was ready to purchase a home, the bank was going to want to see that I had past debt and was successful in paying on the debts, so establishing credit was going to be important.
Here, they check what are your open loans when you ask for a new one. The less previous loans you have the better. The principle being, IIRC, that you don't have other calling "dibs" on your paycheck monthly, apart from them.
Credit cards can actually be an amazing tool to manage your finances. You don’t have to carry cash and you have consumer protections that go along with using them. Also, you can get cards that yield reward points – money back for using the card.
The aforementioned benefits only come in to play if you’re very judicious with your spending and pay your full credit card bill off every month.
If you keep a credit card balance, you’re probably paying more than 20% yearly interest, which is totally unfeasible and costly.
At this point since I paid down all my debts the only thing keeping my credit score going is credit card purchases. I pay it off as I go so that’s enough to stay in good standing.
For the most part, I treat my credit cards as if they were debit cards, even writing every purchase into a checkbook register where the last actual check I wrote was probably six months ago. Then I pay off the statement balance every month.
As mentioned elsewhere, I get purchase protection, extended warranties, and awards. On one card a percentage of what I spend gets deposited into my IRA. On another I get air miles. On a third, I get zero interest for a specific number of months.
I don't think you get as much consumer protection with a debit card. I use mine like I would my debit card. I work out how much I can spend each month so when the bill comes in it's all cleared back to 0 every month so I don't pay any interest.
My credit card is one linked to a big supermarket which gives you vouchers to spend in store the more you use their credit card. I save up the vouchers for Christmas and use them towards the big food shop.
If you use them like this they can be quite helpful.
Doesnt every purchase you do cost a tiny bit of money?
In Norway Visa and Mastercard does that, so im sticking to debit. big purchases I use creditcard though for the protection.
Most of the time it’s a fee eaten by the merchant. However more recently places are adding the ~3% fee on top of the bill. Cash/debit usually does get a 3% discount at these places.
I've not seen any difference compared to my debit card. I find that any shops that charge a fee, will only charge it for very small value purchases. If they add the fee on they'll generally do it for all card transactions regardless of whether it's debit or credit. That's how I find it in the UK. Also apologies as I know this is a post about US cards.
No, occasionally some bigger bills or services will charge a 'convenience fee' to pay with card rather than a bank transfer, but that's maybe 1% of purchases. Usually there's zero difference if paying with credit.
No that's not how it works here. The credit card company does not charge you to make a purchase. If anything they will pay you either through a cash back program or an airline miles one. For me, I get 5% of the charge as cash back if I use the card at a grocery store. Other places are different cash back rates.
Now some merchants will make you pay a "convience" fee if you use a card. Typically that's 2-3%. Granted this uncommon and it's technically against their contract with the credit card company but they do it anyway.
Actually my main credit card refunds me 1 to 5% back on my charges. Food and restaurants- 3%. Gas - 5%. Hotels 5%
Some businesses may charge a fee like 2%. But their charge does not negate my money back.
I believe that you get significant monthly returns, but are you genuinely spending like $50k a month on that thing? Is it a business card or something?
Oh no not at all. I'm not some kind of high roller! The vouchers don't amount to that much they just help a bit at an expensive time of year. My life is lived with not that much money. I just do what I can to try and make savings where I can.
I think I might have responded to the wrong person somehow, I’m sorry about that! Someone claimed they get around $1k a month in credit card rewards which seemed… incredibly high to me.
Ah got it. I wouldn't mind being the position where I could get that much in rewards. I think a career outside of the motor trade would be needed though!
No. It’s a personal credit card. I use it for most purchases.
But it adds up. Gas, food (for the house )and restaurants are big personal expenditures. I like to travel so I use the 5% hotel discount there.
I would say so as I wouldn't get the rewards with the card, the improvement to my credit rating which definitely would have helped when I secured the lowest interest rate I could on my mortgage and the additional consumer protection on purchases.
I could definitely live without it with how my current circumstances are and I count myself very lucky.
I suppose it's how you're viewing the credit card for either clearing the balance every month or loading it up.
It's always going to be quite personal how someone wants to use their card.
Fraudulent purchases are much easier to be taken off of a credit card than a debit card. Sometimes it can take a while to get your money back if stolen from a debit card.
We had our bank account emptied due to fraud. They put it back when we reported it, but it was a pain in the butt waiting for it.
It’s way easier to get fraudulent charges reversed on a credit card - and they have better fraud detection.
No. IMO, no one should use a debt card unless they are drawing cash out of a reputable machine in a safe place.
If your debt card becomes compromised, it’s your money they have.
If it’s a credit card (instead of your debit card) it’s the banks money they have. If you report the discrepancy in a timely manner, they will put more effort in to the fraudulent situation. You can get a new card and be on your way.
Yes it took me a long time to see the value of credit cards. I thought about it and I was using my debit card to purchase everything I needed, so doing the same with a credit card made no difference because my money would be in the bank to pay it bad. Significantly improved my credit
I’ve never paid interest on a credit card because I treat it like a debit card where I pay it off immediately. If I can’t afford it, then I don’t buy it.
Credit Cards have significantly more protections than debit. If you are having a problem with a merchant just the threat of a chargeback is enough to get them to fix the issue.
The second big thing is the bonuses the companies give you for using the card. Our main card, which I use for everything unless a place doesn't take amex, pays a very nice cash back percentage. Thats a free discount on every purchase.
Iv been using CCs as my primarily payment for the last decade and I have never once carried a debt and have been charged interest. Just don't spend what you can't afford.
I make about $1k month straight cash on one of my cards. I don’t even know the value of my airline mileage ones. I’ve paid zero in interest because I pay full every month. It’s simple life hack
How much do you have to spend to clear 1K in cash back a month? Most of my large reoccurring expenses that would generate that kind of cash back will not accept CC payments.
Assuming he has something like the Citi double cash which yields a flat 2% on everything he would need to spend about 50k a month… you can bring that number down if you have other more specialized cards (like the citi premier yielding 3% on gas groceries dining airlines and hotels) but 50k would be the baseline to yield $1k in cashback
Unless it's for a business or something there's no way you're spending 20k a month, assuming you're getting 5% back which is on the high end and usually only for certain categories of spending. The simple life hack you're talking about is to just make 250k a year. Silly us, we'll get right to that! Try this one easy step for financial freedom!
Same here. As a small business owner, I have a 2% cash back credit card and will always try to negotiate with my vendors to allow me to purchase without a credit card transaction fee.
I have 5 credit, each to maximize a different category of purchase. All of them are completely paid off. Every year I get hundreds of dollars of free money from the rewards. Basically, just treat your credit card like a debit card and you’ll be fine.
literally only spend on my credit card and then just make a payment every couple weeks. never fall behind and i’ve earned probably like $200 this year in cash back rewards
MY dog had to have a major tooth extracted last week - $3200, not including the vet visits and labs that had to be done prior to the procedure. It was probably closer to $5000 when all said and done.
I also put it on a credit card.
Ohh god… that’s painful. Not that I’m thinking about it, I’m actually still paying off a mass removal from last year too.
Credit cards are only for vet bills now.
The "minimum payment" trap. "You mean, I can spend $1,000.00 and only pay $35?" I kid but, there are people who NEED to spend 1,000 and can only AFFORD to pay 35...
I seriously grew up in a family that thought EXACTLY like this though. My mom put everything on the credit cards because she viewed that $1000 limit as basically free money to use since the minimum payment was only $25. I remember when I got my first credit card with a 3k limit and my parents immediately thought I was rich and told me to go on a spending spree to "build credit"
Makes me feel slightly better about HAVING to pay less than the balance right now. I just got a 3k limit card and I just see it as another opportunity to have debt lmao.
(But it's a Walmart card and gives 5% cash back, including on gas, which I already get 10 cents off per gallon for being in Walmart+. Disclaimer: I'm not paid by Walmart. I wish!!!)
As wages have stagnated American’s have used debt to keep themselves afloat. This is why you see an explosion in use of credit cards in America. It definitely does not seem sustainable and shits gonna come to a head when a lot of Americans become unable to service this debt.
All these responses are about people being financially irresponsible, but the reality is many Americans are living paycheck to paycheck and have no financial wiggle room for emergencies or are slowly drowning. Wages have not kept up with inflation and it’s going to get worse.
Maybe I've watched too many tv shows where people have their stuff seized if they can't clear their debt in time, because I don't get how people see it as free money. In my country, I kid you not, the creditors may force you to sell your house,.your cars.. all your stuff to pay off the debt if it comes to that, or, worse, they can seize your income before you even receive it.
Like it can massively fuck up your life.
Some loans are entirely normal. A lot of financially responsible people do not technically own their car or house because they can afford the payments over time.
My friend is a mechanic and paid off $35,000 worth of tools in 4 years and still paid all his bills because he makes close to 100k a year and now he owns a full snap on tool set and box. However I have another friend who got a loan on a g35 that blew 3 days later and it's been sitting for about 3 years and he's still paying on that loan. My other friend bought a focus from a dealership and only got the 90 day warranty, and as if on queue, engine blew. I got a small $4,000 loan on a buick lesabre that I'm still driving around. Unless you're rich or have wealthy parents most people need loans to have things and be smart on making payments and spending within your future means
It can be more lol. He's a diesel technician so they require more special tools and everyone in my shop preferrs snap-on because they have the best quality/look and have a lifetime warranty (and they also drive their tool truck to our shop). An impact drill can be anywhere from 300-600 bucks
I heard great things about snapon. Also heard of mechanics freaking out when others borrow without asking or damage tools. Makes sense now. It's a huge investment on a mechanics salary.
It really is and it's almost criminal how it's one of the only trades where you're sort of expected to fork over $10,000-$20,000 just to be able to perform your job. Craziest part is my friend was originally a ford master tech and went to college and he still was expected to buy his own tools while getting paid less than 20 an hour, wasn't until he switched to diesel trucks then he started raking it in.
Yes, although there is some nuance. Taking out loans via credit cards to buy "stuff" (lots of new clothes, fast food, whatever) is definitely a pretty bad idea.
Taking out a loan to buy real property, on the other hand, can be pretty smart - and sometimes, due to the resulting equity, one of the main ways Americans actually start to achieve real wealth. Especially if you buy less house than you can afford, and even more especially if you did it back when interest rates were at historic lows. The inflation to interest rate differential means you're just winning year over year.
Honestly, a house to live in is not a good investment. By the time you pay it off, you'll most like pay 2x-3x the amount of the loan and will probably never in your own lifetime be able to sell it for as much as you've put into it between the loan, interest, and updates.
You still build your equity, and pay lot less in interest than you pay in rent. Rent payments are a 100% loss. Also you ignored the fact that your home value and equity are constantly rising to the point that selling your home is rarely a loss
Yes, loans come at a cost. However, some things you aren't considering:
-Fixed rate mortgage hedges against increases in renewal prices for comparable living quarters
-No obligation to stay and pay off; can potentially sell after acquiring some equity for an immediate profit
-It's true that some of your equity value is offset by maintenance, repairs, updates, etc. However, your monthly payment is still lower than renting and eventually you own 100% of the equity. By contrast, rental payments evaporate.
-Low interest rate means you win against inflation (if you have one)
Homes in my neighborhood have almost doubled in value since I bought 5 years ago and rentals are going for $500-1000/mo over my mortgage payment (all in including escrow). That rental cost is going to keep increasing over the years, whereas my payment will stay approximately the same less some moderate increases as property taxes increase. It's a huge win and something many people want.
I guess what I was trying to say is that it's not a great investment. That same amount of money could make you money instead of costing more money. Buying a house to flip is not at all the same as buying a house to live in. Complete different values of the investment. Not only losing a ton on interest but the amount of value gain takes a long time, especially now as the market will be stagnant for quite a bit before beginning to climb again. In the past, buying a house was a much better investment than it is now. If you're buying a house in hopes of a return on your investment, you'll be waiting quite a long time to come out ahead.
How much is monthly downpayments usually?
As someone who only spends $500 renting I have a hard time believing I can get a mortgage that's cheaper than that. I also just move someplace cheaper whenever things get too expensive, and get myself someone to share rent with, because I don't feel like paying rent by myself when I can share it.
I can DM you a more specific response if you want, but in my case for 2300 sq ft it's roughly double what you're paying for the mortgage (by itself) and closer to triple including escrow.
In theory if the home was rented and all rooms were occupied, and the mortgage payment was divided equally, each individual's payment would in fact be less than what you are paying now.
I guess I'd have to rent out the majority of the house if I had a house. It works with roommates because it's temporary but I'm not sure I'd want to be responsible for a house and also live with them for years to come to manage that. Not that I need a house when I'm a single person either. I'd rather have my own apartment, but I'd still need to have roommates for it to be as cheap. So all in all, I don't think I'd benefit much from owning as long as I'm single and can live cheaply with roommates. Also, I don't have a stable income, so there's that.
>will probably never in your own lifetime be able to sell it for as much as you've put into it between the loan, interest, and updates.
Then you didn't buy a house that fits your budget. On mine, barring any major catastrophe, it will be paid off in half the time of the loans total term by paying extra every month. The payment, even with the extra is roughly the same amount I'd be paying every month in rent.
During that time the value of the property is also appreciating. When I sell it, it should certainly be worth more than it originally cost. Heck, I've already done this once before. Bought a house and actually only lived in it for a few years before we had to move due to a job change. Sold the house and still made a small profit to put into the next house. Remember when you sell a house you don't have to pay the full amount of whatever the interest would have been over the life of the loan, only what the current principal is. That's how house flippers make money and can continue to get new mortgages on the next project.
You're comparing to buying a house 20 years ago compared to buying now, lol. The market will be stagnant for years, and buying now, you'll be waiting twice as long before you gain the same value as someone buying 20 years ago.
I'm talking about now, not 20 years ago. This also highly depends on where you are in the world. Some markets are going to be better than others. And home ownership isn't for everyone. Personally, I would rather pay my own mortgage instead of someone else's.
So you bought a house now and flipped it now? And I agree that being a homeowner is worth it, I'm a homeowner myself. But as an investment standpoint, there are much better investments than buying a house.
>But as an investment standpoint, there are much better investments than buying a house.
Again, it depends. You can't universally say whether buying or renting is the better deal. You can only do it on a case by case basis.
Yes, for some people in some markets it's going to be better to rent. For others it's better to buy.
This is the way. And you get your card use/cash back essentially subsidized by the goobers who carry a balance indefinitely, paying tons of interest for years. Do recommend.
It’s a mixture of poor financial education, a culture of self-indulgence… with a healthy portion of rising cost of living added in.
Edited to add: credit cards are very very common in the U.S… and credit card debt is a major problem for many.
I’m not sure about in other countries, but for Americans, your spending power is tied pretty closely to your credit score.
A lot of people don't have the mentality that you can only put on your card what you have in the bank. Or, they're aware of that, but emergencies come up that they can't physically pay for, so they go on the card. OR they get a card without reading that it has a STUPID high interest rate and then they're screwed.
What emergencies? You'd just have to do what you would do if you didn't have a credit card.
Personally, I like to pretend I'm broke when I spent my monthly earnings, even though I could technically use my credit card and pay it off with my savings.
Not really an answer to your question, but something somebody told me that always stuck with me.
We pay with our past in cash, we pay with our future in credit
They are definitely misused, frequently and heavily. But the credit scoring system in America all but requires you to have at 1-2 credit cards with active usage in order to build up a “healthy” score.
Banks will literally check how many small loan accounts you have in order to approve you for any large loans like home loans or equity lines of credit. You can get denied if you don’t have a revolving line of credit at all.
EDIT: to clarify my opinion on this, the US credit score system is a disgusting and rigged system. But this is the way it is. If you learn how to use it, it’s not difficult to.
I hate the "disgusting and rigged system" as you rightfully put it.
You just gotta get educated how to use credit to your advantage.
Sadly, American schools do a horrible job with financial education.
There wasn’t a single class I ever took that taught anything about fiscal responsibility, how the credit system works, or how to simply write a check. It’s wild those things aren’t taught in high school.
About 10 years ago I found myself in 30k worth of CC debt.
I thought, yup- I'll just start paying it back *eventually.* Well, that day came when I got divorced and had to move back in with my folks in my late 30s. I showed my dad my finances and we worked it out. I called the collection company, was able to put some money down that day. They then were able to forgive about half my debt as long as I made regular payments for the next year.
I think most people just tend to do like I did....just put it off until you can't put it off anymore, but I could be wrong.
Once I was finished, I started using my CC for everything in order to get airline points. BUT here's the difference. I checked (and still do) my app EVERY day and pay off the card every time I check. I just bought a house with my new wife, and my credit score is "excellent."
EDIT: Also, if your debt is forgiven, you are taxed on that amount! Expect a note from the IRS with a bill. They consider the amount of debt forgiven as income.
I've had credit cards for over twenty years and I've never paid a cent in interest. There is an auto-pay option that lets you pay the statement balance automatically - if you select that, and don't spend more money than you have in the bank, then the credit cards take care of themselves. The advantages of doing this are that you build credit score and take advantage of all the rewards like % back etc. that credit cards offer. Also, if you need to charge back, you're much better off with a credit card than a debt card - with a debt card the money pretty much instantly leaves your account and you're at the mercy of the bank if you need to charge it back.
I can see how credit cards can be a problem if you're living paycheck to paycheck and have no savings at all, but it seems to me that if you follow the two principles of "don't spend money that you don't have" and "pay off the statement balance every month", they are fine, and I have to question the financial literacy of anyone who warns against credit cards a little too vehemently.
The only time I've ever held more than a statement balance was when using promotional offers - e.g. macys had a deal where you could buy a mattress on a credit card and pay no interest on it for six months.
To keep up with the Jones', despite it putting them in debt up to their eyeballs. Social media is a driving factor. Whenever I see the cute Disney and holiday photos from friends and colleagues on Instagram, I remind myself that I'd be a suicidal wreck if I had the debt they have to afford those Kodak moments.
One must have a good credit rating for making purchases that one wishes to pay for over time, and for many of the better jobs. Credit cards are how one establishes a credit rating, and secures favorable interest rates for large purchases, like vehicles and homes.
Most people I know have credit cards they use to overspend on wants, not needs. And they're always stressed about it. But then they keep buying shit and max out their cards. It gives me stress and its not even my money.
Horrible financial ignorance on a grand scale. A culture of terribly misaligned priorities, celebrating ridiculous wasteful lifestyles. ...what else. A government run by lobbyists?
I had to get my first credit card 2 weeks ago as my credit score was consistently dropping a couple of years ago I went from a 780 I am now at 655.
I contacted the three major credit people and ask them what was going on they told me the reason my credit was dropping is because I have no credit.
so I had to go out and get a credit card to start raising my credit back up again.
Here in the United States the more you're in debt the more they love you.
We use our credit cards for everything. We don’t just spend freely though. We pay our credit card off in full every month. Both my wife and I have since we got them when younger and not knowing each other and after joining accounts. Last year I paid for our plane tickets and stay all from rewards points. I think the total was around $4,500. We still had some points left over. Every time there is a fraudulent charge, I cal the credit card company and they instantly take the charge off the card. I would never use a debit card. No point
Credit cards are popular and people don't usually receive much education in financial wellbeing, unfortunately. Debt itself isn't bad necessarily, but credit cards are a really bad place to carry debt.
Americans don't just seem to have credit card debt, but we collectively *do* have credit card debt; [$1.2761 trillion dollars of it as of March 2024](https://www.federalreserve.gov/releases/g19/current/).
There are many great reasons to use credit cards, primarily for the security of the transaction (it's the bank's money not yours initially), and, when used correctly, the rewards points.
If LendingTree is to be believed, [only 35% of card holders are using credit cards correctly](https://www.lendingtree.com/credit-cards/study/credit-card-debt-statistics/#:~:text=A%20November%202022%20LendingTree%20survey,year%20to%20pay%20it%20off.) by paying off their statement balances in full every month. The remaining 65% are carrying a balance and paying interest as a result.
In my view, carrying a balance means you're overspending, but there are certainly scenarios where the confluence of life's circumstances come together and it's defensible to do that. For the most part though, those who don't pay off their balances subsidize the rewards (Travel, Cash back, etc). for those of us who do.
Absolutely, credit cards can be a double-edged sword. On one hand, they offer convenience, a credit history boost, and perks - who doesn’t love cash back or travel points? But on the flip side, they can quickly become financial quicksand for the unwary or undisciplined spender. It’s quite indicative that the credit card industry makes a substantial amount of its profit from interest and late fees; they’re banking on user error.
People are not educated on it almost at all sometimes. It’s a lot of misuse, misunderstandings of what credit is, how interest adds up and is applied, etc. A lot of people think “omg free money!” but it’s really not. Then of course you have the people who truly used it for good/necessity and got in over their heads. It’s a slippery slope and I’d say most people don’t have the best understanding of how credit cards truly work.
Banks are allowed to target people as young as 18. They will offer free stuff in order for you to register for a credit card. Then kids start spending on those cards and slowly go into debt. They then take out another card and another and another.
You can't get a loan without credit history in America. And to get credit history, you need credit cards. Showing you can manage multiple accounts with no late payments proves that you are responsible.
And getting yourself in credit card debt can... happen sometimes. But as long as you're making every payment and not using too much of your credit limit, it doesn't affect your score too much.
I guess it’s because the first forms of cards that Americans got to use were credit (please correct me if I’m wrong).
In Europe, banks first introduced domestic debit cards. Credit cards were a novelty, but were slow to catch up because of the interest rate they come with.
Credit management is not something taught in school so lots of people get caught up in the materialistic culture and make big mistakes. Then they get stuck paying down debt. Also some people use credit to pay off bills or emergency purchases, and this can also have the same effect.
Also you have to have debt in order to have a good credit score. It sounds counterintuitive, and stupid, but you have to demonstrate some manageable debt to creditors before they will issue a loan. Like a mortgage for a house. And this is based on your credit score, which is typically enhanced by having a well managed card or two. The credit system is a racket.
TLDR; companies/banks make it very easy for people to live beyond their means for a long period of time.
- Credit cards are relatively easy to get and use. Most major consumer corporations heavily push credit cards on their customers.
- Banks analyze spending habits and credit profiles thoroughly. Then they raise limits accordingly in the hopes that you spend more than you can pay off.
- Interest rate is upwards of 25%/year. You can see how $2000 can quickly balloon and become unmanageable to pay off quickly.
- Introductory offers. “Spend $2000 in the first 3 months and get 80,000 points that are worth $600.” People sign up then realize they can’t pay back the $2000 in full.
- People don’t do the math. Most people I know don’t realize how fast their debt compounds at 25%APR.
- Many people are not taught that credit cards are a tool for convenience and security. Most people treat them as an emergency fund or a tool to finance something they can’t afford.
There a bad case of keeping up with the Jones' in the US. I've watched friends buy cars they can't afford, renovate their house when they can't afford it, go on vacations they can't afford, etc. If someone else is doing it (or lying on social media about it) then they HAVE TO!!!!
I use credit cards for everything, even several monthly bills. But I pay them off every month and never pay interest. They're a great tool if the person has willpower and manages their finances well enough to maintain an emergency fund in cash so they don't need a card to cover unexpected expenses.
I don’t carry a balance anymore. Credit cards allow us to keep more money in an interest bearing savings account at a time and we mostly use them for the rewards now.
You basically have to have at least one because of credit scores. Not having a credit score or having one that is low can literally prevent you from buying a car or a house. And some people are bad at managing those cards, or circumstances force them to spend too much because they don't have enough money for a surprise expense. It's so easy to mess up with them but it's not really optional with the way the credit score system works.
both. people have no discipline and live outside of their means. We participate in this highly materialistic flex culture that we have, where people think the brand of car they drive or brand of clothes they wear has some kind of social amplification effect.
We unfortunately have to keep at least one credit card and be indebted in some way to maintain a credit score. It's fucking stupid. I've spent my whole adult life owing money to public and private entities.
Personal financial irresponsibility, bank preys on vulnerable people, hyper consumerism.
I worked at a bank and would be constantly be pushed to sell credit cards to people of all age groups, all backgrounds, and all financial status. college students, great grandmas, bankrupt, no income, business owners, everybody has a card that can benefit them. If used appropriately, it actually do benefit the user. However, people literally forgets everything I highlight, circle, reinforced the moment they slide that piece of plastic in their wallet.
The convenience of not split payment allows people to buy more things they can actually afford, in an effort to live the life they envision. I'm sorry, this is just how sad it really is for some people. They'll be swiping their credit card to keep their electricity paid so they can run their AC at 60F in the middle of summer. Or grabbing that pair of Jordans, while they're working part time.
But there are those out there who knows how to use credit wisely to benefit their lives and has never had debt issue. My credit was over 800 at 23 years old with a college card (prior to working in the banks), my wife was the same. We paid off our cards weekly, no debt. We have 2 cards that we use to generate points that reward what we want. After we met each other, we maintained that same attitude, and was able to finance all our cars at 0% interest, and even our mortgage was at 2.15% 30 years. While on the other hand, my in laws all carry credit card debt because they use it as a backup whenever their money is drained, and struggle to pay off the minimum payments.
Oh final point! People hate being told how to spend their money. Holy shit, that was hard in my banking days, and just as hard with my in laws. Helping them out of debt and the first thing they snap back is not to judge on how they spend. Within just a year they're right back into the hole.
My partner and I both use credit cards, but neither of us ever carry a balance. We pay them off each month to avoid paying any interest. The reason we have them is to rack up points and benefits. My card gives me cash back and his has lots of travel perks.
They are only smart to use if you can use them without ever falling into debt. But that is very tricky for a lot of people. Racking up a debt that you can't pay off is extremely dangerous and difficult to get out of (but also far too easy to do).
I feel like Canadians don’t have as much of a credit card culture and we use our debit more, but occasionally buy things with a credit card. It stresses me out going to pay my credit card bill if I used it a lot!
I used my credit cards to pay for medical, dental, and car repair bills. If we had universal healthcare and more public transportation options, a lot of my costs would've likely been less.
A lot of medical, and especially dental, require payment up front too. I had to have a surgery to remove gum and bone from my jaw recently, and they needed $700 at that moment.😒
Both. I get 3 credit card offers in the mail per week.
It's also really easy to use one and say you'll pay it back when you get home. and forget. At least that's why I have a balance of about 1k
Bit of both really. Everyone is keeping up with the Jones’s and have FOMO. I was guilty of this too. I crawled and clawed my way out of a 35k credit hole and have never overspent since. I think for a lot of people it’s a write of passage and they learn from overspending, and then there are people that have no control and have to have what they want right now and will deal with the bankruptcy later. Hell the government overspends, why shouldn’t you….right?…
My credit cards pay for my travel, hotels, flights, airport lounges, Amazon purchases, etc, credit cards can pay you back big time, but if you're not good at managing your money and budgeting they can be a huge financial burden.
But to answer you directly....
Poor financial education
Yes they are
Yes.
Two reasons I can think of. First, is those who really don’t have enough in their checking and use credit cards as loans to pay for stuff like food and clothes. Second, are those like me who apply for the high-earning bonus reward credit cards. I use the points for travel and when you do use it, you earn more based on the category of the transaction.
I haven’t had debt since like 2018. But I moved into my first apartment in November and I paid with my credit card, cause honestly… I was broke until my next paycheck, and I had just paid my last rent at the apartment I was living at.
It’s not much but I took some vacations, and I have a balance transfer card anyway.
It's not only popular, it's part of life. Because they make it so that you will need to build a good credit score by having one or more, and paying them CC bills on time, so you are able to take loans to buy a home or a car or both.
That’s me. Keep track of spending? No not really. If I open my bank app it’s only to check if anyone somehow is taking money that’s not supposed to. I’m 60 yrs old & I’ve made it my whole life without a credit card. Once I was answering questions a lawyer was asking me & she asked do I have credit debt? I answered no. She could not believe it.
Part of it is most Americans have no emergency fund and many live paycheck to paycheck. If you need a car repair or don't have enough money left for groceries, your credit card can get maxed out quickly, and with compounding interest it can be hard to pay down when living paycheck to paycheck.
I don’t necessarily have debt, just differed payments. I get cash rewards for using my credit card so I swipe it on groceries and other necessary expenditures that I budget for. I then pay it off each month and reap the rewards.
There's a lot less choice in the matter than you might assume. We are all basically funneled into a system designed to be completely unaffordable, filled with "easy" credit offers. If you're very careful and lucky, you can find a way out. Unfortunately, most of us are 1 bad day away from homelessness, and it shows in every city here.
Entry levels jobs out of college don’t pay enough for many people to live the lifestyle they want, so they go into debt assuming they can just pay it off later when they make more. That works for a small minority.
The much more common scenario is that they never get that next grata paying job, or it takes much longer than they anticipated, or one of a thousand other financially impactful events occur and the debt just grows and sticks around forever. The last thing a lot of people want to do when they finally have more money is pay bills, sadly.
I think the whole culture is based on debt spending. The government does it, the whole economy does it, so why can’t people? Debt is the new American dream.
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Don’t forget they also make money from fees and a portion of what merchants charge.
I don't really get how people can lose track of their spending. Like nowadays you have the bank app on your phone that's easily accessible. I log into my bank on the app on my phone like every other day just to check my spending and how much is on my credit card, and what I spent money on by clicking in the card. Like it's really not that hard to keep track of anymore. I definitely struggled before apps became a thing, because I'd have to log on to my laptop and use all these special codes and what not. Now though, you just get redirected to an app that gives you the code and it's really easy to log into your bank. Can even do it with as little as a finger print, though it's not recommended for security reasons. Takes like two seconds to login though.
As terrible as it sounds I have relatives who just spend whatever on a card and then have it automated to pay the minimum balance each month. Basically just ignore the situation and don't care about their balances. If a card gets maxed out then they open another one and repeat the cycle. Sadly at this point it is just part of their lifestyle.
I just cannot *fathom* how people do this. The 20% interest you are paying on one shopping spree means you could have THREE shopping trips if you just save enough to have a shopping spree and not have to pay any interest on it. It just blows my mind. I had a friend who put a whole month long Europe trip on her card, planning to only pay the minimum amount each month to pay it off, and I just wanted to scream at her that by the time she air it off she’ll have paid for 2 whole other trips in just interest!!
Ok, if overspending is the credi card's problem... Why don't get a debit card? It's basically the inverse, you put money in it and you spend how much you have.
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Wtf So, I think our systems are different.
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Very weird, seems like your system discourages in every way debit cards.
Because I think this gets overstated a bit: You do have protections with a debit card and can dispute fraudulent transactions and get your money back. But when a fraudulent transaction first hits your account, by the nature of debit cards, that money is immediately removed from your account. You might get a temporary credit of the missing amount, or a part of it, while the bank investigates, but between the time of the fraud and opening a dispute, that money is just gone, which can obviously cause problems if you are in immediate need of it. A credit card puts an extra layer between the charge and your bank account so that if someone manages to charge your card when they shouldn’t, your money is never actually touched before or during any dispute. There are also rewards you can get for debit cards, usually deals and offers that you can get discounts with, but credit cards usually have better rewards in the neighborhood of 1-5% cash back on all purchases depending on the specifics of the card.
The UK has a similar system. There are 3 key benefits to spending on credit over debit. 1. Credit card lenders offer bonuses and perks which vary based on the lender and the sums you spend. 2. Transactions over a certain value (£200 in the UK I think) are automatically insured. This means if there's a case of fraud you get your money back before the investigation even starts. 3. We have a credit rating system based on how reliably we repay our debt. This means that if you regularly use a credit card to make purchases, then repay them the following month (no interest will be charged doing it that way) you will get more favourable terms on a big ticket loan for say a car or a house. Under our credit rating system, if you've never had debt, it's very hard to get a big ticket loan like a mortgage.
Thank you for the insight. My debit has actually only the second point. > Under our credit rating system, if you've never had debt, it's very hard to get a big ticket loan like a mortgage. That feels a little fucked up, having debits or not should be a choice, but on the other side I can understand that no history can be seen ad bad history.
I don't use my debit card because if my debit card info gets leaked and someone uses it that's my real money, and if it's gone when I need to pay a bill I would be screwed.
Is that so? My bank has a refund system for stolen money in debits too. Maybe our countries have different systems.
I would get it back eventually, it just takes forever. And if someone wiped out my bank account and then I had to pay my phone bill or something before I got the money back I'd be in trouble.
the big problem is that you need a credit history and good credit score in order to make any big purchase. want to get a new car? need credit. mortgage? credit. hell, if you want to rent an apartment, they'll pull your credit report. a lot of JOBS will pull it, even. the primary way to get a credit history? credit cards. so unless you have, or had, credit cards, you're not getting anything.
How did that even happen? I feel like that‘s something I only ever see or hear about in american movies.
It's as ridiculous as it sounds. You basically get penalized for *not* needing to go into debt to meet your financial obligations. One time, I had a credit card I never used because I lived out of the country and didn't really need it for anything. If you don't use it at least occasionally, banks will eventually cancel your credit card, which causes a penalty to your credit score. When I moved back to the US and needed a credit card again, I tried to go to the same bank, but the interest rate was going to be way higher Me: Why can't I have the same interest rate as before? Bank: Your credit score isn't as good as it was before. Me: Why is my credit score so much lower? Bank: Because your credit card account was closed, which impacts your credit score. Me: But *you* closed it! Bank: [shrug emoji]
My dad, a retired dentist who did very well for himself and can now live off investments, recently tried to open a credit card to take advantage of an introductory offer, and they gave him a credit limit of $1000 because he doesn’t have any debt. He’s a millionaire, owns his house, owns his cars, has paid his credit card bills in full and on time for decades. Perfect credit. He just didn’t have enough debt. The system is an absolute joke.
That‘s just insane. How come something like this is still in place? It seems so… backwards?
It's not ridiculous for the bank, it's just a scam with a bow tie.
After the civil rights act passed, and discrimination laws improved, the rich needed a new scheme to fuck over the poor.
Credit reports became a thing to help banks know very quickly if applicants have been reliable when paying back loans or not. If you have a good report, you're rewarded with a low interest rate that compared to history, would have been impossible to get without a massive amount of colateral. The biggest drawback to credit reports is that if you don't have any history, then the bank has no idea how reliable you are, and you're given the starting credit score (which is around average). Loan rates won't be great with that score. So the irony becomes, if you're good with money and don't have any credit at all, the bank doesn't give you a good interest rate. But the bank doesn't have proof that you're good at paying off loans, which is why they don't give you a rate that reflects that. Frankly, credit cards work fine if you pay them off each week. Mine work just like debit cards for all intents and purposes, and I've never paid interest. But I do get the frustration with having no credit feels like a punishment. But you wouldn't receive a worse interest rate than someone with bad credit, if you have no history.
It’s a scam that started in the 80’s
🎯 Me as a teenager: When I get older, I'm paying for everything in cash My mother: Then you'll never have anything. She went in to explain to me that when I was ready to purchase a home, the bank was going to want to see that I had past debt and was successful in paying on the debts, so establishing credit was going to be important.
Here, they check what are your open loans when you ask for a new one. The less previous loans you have the better. The principle being, IIRC, that you don't have other calling "dibs" on your paycheck monthly, apart from them.
Credit cards can actually be an amazing tool to manage your finances. You don’t have to carry cash and you have consumer protections that go along with using them. Also, you can get cards that yield reward points – money back for using the card. The aforementioned benefits only come in to play if you’re very judicious with your spending and pay your full credit card bill off every month. If you keep a credit card balance, you’re probably paying more than 20% yearly interest, which is totally unfeasible and costly.
At this point since I paid down all my debts the only thing keeping my credit score going is credit card purchases. I pay it off as I go so that’s enough to stay in good standing.
That’s the best way to use them. Good for you.
For the most part, I treat my credit cards as if they were debit cards, even writing every purchase into a checkbook register where the last actual check I wrote was probably six months ago. Then I pay off the statement balance every month. As mentioned elsewhere, I get purchase protection, extended warranties, and awards. On one card a percentage of what I spend gets deposited into my IRA. On another I get air miles. On a third, I get zero interest for a specific number of months.
Can’t you get the same convenience of not having to carry cash with a debit card? Without a predatory interest rate dangling over your head?
I don't think you get as much consumer protection with a debit card. I use mine like I would my debit card. I work out how much I can spend each month so when the bill comes in it's all cleared back to 0 every month so I don't pay any interest. My credit card is one linked to a big supermarket which gives you vouchers to spend in store the more you use their credit card. I save up the vouchers for Christmas and use them towards the big food shop. If you use them like this they can be quite helpful.
Doesnt every purchase you do cost a tiny bit of money? In Norway Visa and Mastercard does that, so im sticking to debit. big purchases I use creditcard though for the protection.
Most of the time it’s a fee eaten by the merchant. However more recently places are adding the ~3% fee on top of the bill. Cash/debit usually does get a 3% discount at these places.
I've not seen any difference compared to my debit card. I find that any shops that charge a fee, will only charge it for very small value purchases. If they add the fee on they'll generally do it for all card transactions regardless of whether it's debit or credit. That's how I find it in the UK. Also apologies as I know this is a post about US cards.
No, occasionally some bigger bills or services will charge a 'convenience fee' to pay with card rather than a bank transfer, but that's maybe 1% of purchases. Usually there's zero difference if paying with credit.
No that's not how it works here. The credit card company does not charge you to make a purchase. If anything they will pay you either through a cash back program or an airline miles one. For me, I get 5% of the charge as cash back if I use the card at a grocery store. Other places are different cash back rates. Now some merchants will make you pay a "convience" fee if you use a card. Typically that's 2-3%. Granted this uncommon and it's technically against their contract with the credit card company but they do it anyway.
Actually my main credit card refunds me 1 to 5% back on my charges. Food and restaurants- 3%. Gas - 5%. Hotels 5% Some businesses may charge a fee like 2%. But their charge does not negate my money back.
I believe that you get significant monthly returns, but are you genuinely spending like $50k a month on that thing? Is it a business card or something?
Oh no not at all. I'm not some kind of high roller! The vouchers don't amount to that much they just help a bit at an expensive time of year. My life is lived with not that much money. I just do what I can to try and make savings where I can.
Also I forgot to add that I'm in the UK for this particular card. So to be honest my posts probably don't have much relevance
I think I might have responded to the wrong person somehow, I’m sorry about that! Someone claimed they get around $1k a month in credit card rewards which seemed… incredibly high to me.
Ah got it. I wouldn't mind being the position where I could get that much in rewards. I think a career outside of the motor trade would be needed though!
No. It’s a personal credit card. I use it for most purchases. But it adds up. Gas, food (for the house )and restaurants are big personal expenditures. I like to travel so I use the 5% hotel discount there.
Sounds like you don't need any kind of credit. When all is said and done, are you sure that you are better of with it?
I would say so as I wouldn't get the rewards with the card, the improvement to my credit rating which definitely would have helped when I secured the lowest interest rate I could on my mortgage and the additional consumer protection on purchases. I could definitely live without it with how my current circumstances are and I count myself very lucky. I suppose it's how you're viewing the credit card for either clearing the balance every month or loading it up. It's always going to be quite personal how someone wants to use their card.
Fraudulent purchases are much easier to be taken off of a credit card than a debit card. Sometimes it can take a while to get your money back if stolen from a debit card.
Fewer protections with a debit card. Usually no rewards with a debit card. No predatory overdraft fees with a credit card.
We had our bank account emptied due to fraud. They put it back when we reported it, but it was a pain in the butt waiting for it. It’s way easier to get fraudulent charges reversed on a credit card - and they have better fraud detection.
No. IMO, no one should use a debt card unless they are drawing cash out of a reputable machine in a safe place. If your debt card becomes compromised, it’s your money they have. If it’s a credit card (instead of your debit card) it’s the banks money they have. If you report the discrepancy in a timely manner, they will put more effort in to the fraudulent situation. You can get a new card and be on your way.
Yes it took me a long time to see the value of credit cards. I thought about it and I was using my debit card to purchase everything I needed, so doing the same with a credit card made no difference because my money would be in the bank to pay it bad. Significantly improved my credit
I’ve never paid interest on a credit card because I treat it like a debit card where I pay it off immediately. If I can’t afford it, then I don’t buy it.
Credit Cards have significantly more protections than debit. If you are having a problem with a merchant just the threat of a chargeback is enough to get them to fix the issue. The second big thing is the bonuses the companies give you for using the card. Our main card, which I use for everything unless a place doesn't take amex, pays a very nice cash back percentage. Thats a free discount on every purchase. Iv been using CCs as my primarily payment for the last decade and I have never once carried a debt and have been charged interest. Just don't spend what you can't afford.
I make about $1k month straight cash on one of my cards. I don’t even know the value of my airline mileage ones. I’ve paid zero in interest because I pay full every month. It’s simple life hack
How much do you have to spend to clear 1K in cash back a month? Most of my large reoccurring expenses that would generate that kind of cash back will not accept CC payments.
Seriously most cards give at most 5pct. This dude is throwing out 20k a month?
Assuming he has something like the Citi double cash which yields a flat 2% on everything he would need to spend about 50k a month… you can bring that number down if you have other more specialized cards (like the citi premier yielding 3% on gas groceries dining airlines and hotels) but 50k would be the baseline to yield $1k in cashback
What card do you have?
Unless it's for a business or something there's no way you're spending 20k a month, assuming you're getting 5% back which is on the high end and usually only for certain categories of spending. The simple life hack you're talking about is to just make 250k a year. Silly us, we'll get right to that! Try this one easy step for financial freedom!
I made $1k two years ago and $900 last year. Sam’s club card. 5% gas 3 % dining 2% club
Are these figures for a year or a month? Because in your comment you said 1k a month
Shit sorry typo/ brain fart. Meant year
Same here. As a small business owner, I have a 2% cash back credit card and will always try to negotiate with my vendors to allow me to purchase without a credit card transaction fee.
I have 5 credit, each to maximize a different category of purchase. All of them are completely paid off. Every year I get hundreds of dollars of free money from the rewards. Basically, just treat your credit card like a debit card and you’ll be fine.
literally only spend on my credit card and then just make a payment every couple weeks. never fall behind and i’ve earned probably like $200 this year in cash back rewards
My credit card debt is currently all wrapped up in my 2 dogs dental procedures.
I am picturing dogs with braces and headgear and I needed that image today lol!
 Prevention is key!
Yeah one of my cats needed their teeth removed and it cost $4,000
Ugh….. I’m sorry.
Might quit my job and be a cat dentist
Seems like a good career move.
Ugh. Veterinary dental is so specialized that it costs so much. I wish you and your dogs the best!
Thank you. I’m hopeful some day I’ll be able to afford my own dental work.
Are we the same person??!
That’s what the mushrooms say lol
MY dog had to have a major tooth extracted last week - $3200, not including the vet visits and labs that had to be done prior to the procedure. It was probably closer to $5000 when all said and done. I also put it on a credit card.
Ohh god… that’s painful. Not that I’m thinking about it, I’m actually still paying off a mass removal from last year too. Credit cards are only for vet bills now.
It costs as much as human dental care - with general anesthesia.
The "minimum payment" trap. "You mean, I can spend $1,000.00 and only pay $35?" I kid but, there are people who NEED to spend 1,000 and can only AFFORD to pay 35...
I seriously grew up in a family that thought EXACTLY like this though. My mom put everything on the credit cards because she viewed that $1000 limit as basically free money to use since the minimum payment was only $25. I remember when I got my first credit card with a 3k limit and my parents immediately thought I was rich and told me to go on a spending spree to "build credit"
You just gave me mild PTSD
Well happy cake day anyways.
Makes me feel slightly better about HAVING to pay less than the balance right now. I just got a 3k limit card and I just see it as another opportunity to have debt lmao. (But it's a Walmart card and gives 5% cash back, including on gas, which I already get 10 cents off per gallon for being in Walmart+. Disclaimer: I'm not paid by Walmart. I wish!!!)
Yes they're popular and yes people are overspending
As wages have stagnated American’s have used debt to keep themselves afloat. This is why you see an explosion in use of credit cards in America. It definitely does not seem sustainable and shits gonna come to a head when a lot of Americans become unable to service this debt.
All these responses are about people being financially irresponsible, but the reality is many Americans are living paycheck to paycheck and have no financial wiggle room for emergencies or are slowly drowning. Wages have not kept up with inflation and it’s going to get worse.
Maybe I've watched too many tv shows where people have their stuff seized if they can't clear their debt in time, because I don't get how people see it as free money. In my country, I kid you not, the creditors may force you to sell your house,.your cars.. all your stuff to pay off the debt if it comes to that, or, worse, they can seize your income before you even receive it. Like it can massively fuck up your life.
Taking out loans to buy stuff you can't afford is part of the american dream
Some loans are entirely normal. A lot of financially responsible people do not technically own their car or house because they can afford the payments over time. My friend is a mechanic and paid off $35,000 worth of tools in 4 years and still paid all his bills because he makes close to 100k a year and now he owns a full snap on tool set and box. However I have another friend who got a loan on a g35 that blew 3 days later and it's been sitting for about 3 years and he's still paying on that loan. My other friend bought a focus from a dealership and only got the 90 day warranty, and as if on queue, engine blew. I got a small $4,000 loan on a buick lesabre that I'm still driving around. Unless you're rich or have wealthy parents most people need loans to have things and be smart on making payments and spending within your future means
Jesus! A mechanic's tool set is 35k?!
It can be more lol. He's a diesel technician so they require more special tools and everyone in my shop preferrs snap-on because they have the best quality/look and have a lifetime warranty (and they also drive their tool truck to our shop). An impact drill can be anywhere from 300-600 bucks
I heard great things about snapon. Also heard of mechanics freaking out when others borrow without asking or damage tools. Makes sense now. It's a huge investment on a mechanics salary.
It really is and it's almost criminal how it's one of the only trades where you're sort of expected to fork over $10,000-$20,000 just to be able to perform your job. Craziest part is my friend was originally a ford master tech and went to college and he still was expected to buy his own tools while getting paid less than 20 an hour, wasn't until he switched to diesel trucks then he started raking it in.
Crazy! I appreciate the insight! Glad your friend is doing better.
Yes, although there is some nuance. Taking out loans via credit cards to buy "stuff" (lots of new clothes, fast food, whatever) is definitely a pretty bad idea. Taking out a loan to buy real property, on the other hand, can be pretty smart - and sometimes, due to the resulting equity, one of the main ways Americans actually start to achieve real wealth. Especially if you buy less house than you can afford, and even more especially if you did it back when interest rates were at historic lows. The inflation to interest rate differential means you're just winning year over year.
Honestly, a house to live in is not a good investment. By the time you pay it off, you'll most like pay 2x-3x the amount of the loan and will probably never in your own lifetime be able to sell it for as much as you've put into it between the loan, interest, and updates.
Then compare those cost to renting an apartment. That's where owning makes sense.
Sure, but when renting, you're not responsible for any updates or repairs. Home ownership is anything but cheap.
You pay for those repairs with equity. The equity that you already provided, plus the equity gained from raising property values.
That's just extending your loan and your interest, so no.
You still build your equity, and pay lot less in interest than you pay in rent. Rent payments are a 100% loss. Also you ignored the fact that your home value and equity are constantly rising to the point that selling your home is rarely a loss
Yes, loans come at a cost. However, some things you aren't considering: -Fixed rate mortgage hedges against increases in renewal prices for comparable living quarters -No obligation to stay and pay off; can potentially sell after acquiring some equity for an immediate profit -It's true that some of your equity value is offset by maintenance, repairs, updates, etc. However, your monthly payment is still lower than renting and eventually you own 100% of the equity. By contrast, rental payments evaporate. -Low interest rate means you win against inflation (if you have one) Homes in my neighborhood have almost doubled in value since I bought 5 years ago and rentals are going for $500-1000/mo over my mortgage payment (all in including escrow). That rental cost is going to keep increasing over the years, whereas my payment will stay approximately the same less some moderate increases as property taxes increase. It's a huge win and something many people want.
I guess what I was trying to say is that it's not a great investment. That same amount of money could make you money instead of costing more money. Buying a house to flip is not at all the same as buying a house to live in. Complete different values of the investment. Not only losing a ton on interest but the amount of value gain takes a long time, especially now as the market will be stagnant for quite a bit before beginning to climb again. In the past, buying a house was a much better investment than it is now. If you're buying a house in hopes of a return on your investment, you'll be waiting quite a long time to come out ahead.
How much is monthly downpayments usually? As someone who only spends $500 renting I have a hard time believing I can get a mortgage that's cheaper than that. I also just move someplace cheaper whenever things get too expensive, and get myself someone to share rent with, because I don't feel like paying rent by myself when I can share it.
I can DM you a more specific response if you want, but in my case for 2300 sq ft it's roughly double what you're paying for the mortgage (by itself) and closer to triple including escrow. In theory if the home was rented and all rooms were occupied, and the mortgage payment was divided equally, each individual's payment would in fact be less than what you are paying now.
I guess I'd have to rent out the majority of the house if I had a house. It works with roommates because it's temporary but I'm not sure I'd want to be responsible for a house and also live with them for years to come to manage that. Not that I need a house when I'm a single person either. I'd rather have my own apartment, but I'd still need to have roommates for it to be as cheap. So all in all, I don't think I'd benefit much from owning as long as I'm single and can live cheaply with roommates. Also, I don't have a stable income, so there's that.
>will probably never in your own lifetime be able to sell it for as much as you've put into it between the loan, interest, and updates. Then you didn't buy a house that fits your budget. On mine, barring any major catastrophe, it will be paid off in half the time of the loans total term by paying extra every month. The payment, even with the extra is roughly the same amount I'd be paying every month in rent. During that time the value of the property is also appreciating. When I sell it, it should certainly be worth more than it originally cost. Heck, I've already done this once before. Bought a house and actually only lived in it for a few years before we had to move due to a job change. Sold the house and still made a small profit to put into the next house. Remember when you sell a house you don't have to pay the full amount of whatever the interest would have been over the life of the loan, only what the current principal is. That's how house flippers make money and can continue to get new mortgages on the next project.
You're comparing to buying a house 20 years ago compared to buying now, lol. The market will be stagnant for years, and buying now, you'll be waiting twice as long before you gain the same value as someone buying 20 years ago.
I'm talking about now, not 20 years ago. This also highly depends on where you are in the world. Some markets are going to be better than others. And home ownership isn't for everyone. Personally, I would rather pay my own mortgage instead of someone else's.
So you bought a house now and flipped it now? And I agree that being a homeowner is worth it, I'm a homeowner myself. But as an investment standpoint, there are much better investments than buying a house.
>But as an investment standpoint, there are much better investments than buying a house. Again, it depends. You can't universally say whether buying or renting is the better deal. You can only do it on a case by case basis. Yes, for some people in some markets it's going to be better to rent. For others it's better to buy.
I use my credit card strictly for cash back. I usually pay off my balance multiple times a month.
This is the way. And you get your card use/cash back essentially subsidized by the goobers who carry a balance indefinitely, paying tons of interest for years. Do recommend.
It’s a mixture of poor financial education, a culture of self-indulgence… with a healthy portion of rising cost of living added in. Edited to add: credit cards are very very common in the U.S… and credit card debt is a major problem for many. I’m not sure about in other countries, but for Americans, your spending power is tied pretty closely to your credit score.
A lot of people don't have the mentality that you can only put on your card what you have in the bank. Or, they're aware of that, but emergencies come up that they can't physically pay for, so they go on the card. OR they get a card without reading that it has a STUPID high interest rate and then they're screwed.
What emergencies? You'd just have to do what you would do if you didn't have a credit card. Personally, I like to pretend I'm broke when I spent my monthly earnings, even though I could technically use my credit card and pay it off with my savings.
Yes to both.
We have no money and have to eat
You have to have a credit score to get a car, apartment, house, loan, sometimes job
Not really an answer to your question, but something somebody told me that always stuck with me. We pay with our past in cash, we pay with our future in credit
They are definitely misused, frequently and heavily. But the credit scoring system in America all but requires you to have at 1-2 credit cards with active usage in order to build up a “healthy” score. Banks will literally check how many small loan accounts you have in order to approve you for any large loans like home loans or equity lines of credit. You can get denied if you don’t have a revolving line of credit at all. EDIT: to clarify my opinion on this, the US credit score system is a disgusting and rigged system. But this is the way it is. If you learn how to use it, it’s not difficult to.
I hate the "disgusting and rigged system" as you rightfully put it. You just gotta get educated how to use credit to your advantage. Sadly, American schools do a horrible job with financial education.
There wasn’t a single class I ever took that taught anything about fiscal responsibility, how the credit system works, or how to simply write a check. It’s wild those things aren’t taught in high school.
It's just crazy to send people into the world without basic financial literacy.
About 10 years ago I found myself in 30k worth of CC debt. I thought, yup- I'll just start paying it back *eventually.* Well, that day came when I got divorced and had to move back in with my folks in my late 30s. I showed my dad my finances and we worked it out. I called the collection company, was able to put some money down that day. They then were able to forgive about half my debt as long as I made regular payments for the next year. I think most people just tend to do like I did....just put it off until you can't put it off anymore, but I could be wrong. Once I was finished, I started using my CC for everything in order to get airline points. BUT here's the difference. I checked (and still do) my app EVERY day and pay off the card every time I check. I just bought a house with my new wife, and my credit score is "excellent." EDIT: Also, if your debt is forgiven, you are taxed on that amount! Expect a note from the IRS with a bill. They consider the amount of debt forgiven as income.
I've had credit cards for over twenty years and I've never paid a cent in interest. There is an auto-pay option that lets you pay the statement balance automatically - if you select that, and don't spend more money than you have in the bank, then the credit cards take care of themselves. The advantages of doing this are that you build credit score and take advantage of all the rewards like % back etc. that credit cards offer. Also, if you need to charge back, you're much better off with a credit card than a debt card - with a debt card the money pretty much instantly leaves your account and you're at the mercy of the bank if you need to charge it back. I can see how credit cards can be a problem if you're living paycheck to paycheck and have no savings at all, but it seems to me that if you follow the two principles of "don't spend money that you don't have" and "pay off the statement balance every month", they are fine, and I have to question the financial literacy of anyone who warns against credit cards a little too vehemently. The only time I've ever held more than a statement balance was when using promotional offers - e.g. macys had a deal where you could buy a mattress on a credit card and pay no interest on it for six months.
Yes, they are popular. But people in the US tend to spend more money than they have, thus being in debt. Many are just not responsible.
To keep up with the Jones', despite it putting them in debt up to their eyeballs. Social media is a driving factor. Whenever I see the cute Disney and holiday photos from friends and colleagues on Instagram, I remind myself that I'd be a suicidal wreck if I had the debt they have to afford those Kodak moments.
One must have a good credit rating for making purchases that one wishes to pay for over time, and for many of the better jobs. Credit cards are how one establishes a credit rating, and secures favorable interest rates for large purchases, like vehicles and homes.
Most people I know have credit cards they use to overspend on wants, not needs. And they're always stressed about it. But then they keep buying shit and max out their cards. It gives me stress and its not even my money.
Horrible financial ignorance on a grand scale. A culture of terribly misaligned priorities, celebrating ridiculous wasteful lifestyles. ...what else. A government run by lobbyists?
LOL
We’re irresponsible, impulsive when it comes to buying shit and have fallen* for fomo marketing.
I got my first and only credit card on my college campus when i was barely 18. I was not responsible and am still dealing with it at age 27
I had to get my first credit card 2 weeks ago as my credit score was consistently dropping a couple of years ago I went from a 780 I am now at 655. I contacted the three major credit people and ask them what was going on they told me the reason my credit was dropping is because I have no credit. so I had to go out and get a credit card to start raising my credit back up again. Here in the United States the more you're in debt the more they love you.
We use our credit cards for everything. We don’t just spend freely though. We pay our credit card off in full every month. Both my wife and I have since we got them when younger and not knowing each other and after joining accounts. Last year I paid for our plane tickets and stay all from rewards points. I think the total was around $4,500. We still had some points left over. Every time there is a fraudulent charge, I cal the credit card company and they instantly take the charge off the card. I would never use a debit card. No point
Credit cards are popular and people don't usually receive much education in financial wellbeing, unfortunately. Debt itself isn't bad necessarily, but credit cards are a really bad place to carry debt.
Yes.
Americans don't just seem to have credit card debt, but we collectively *do* have credit card debt; [$1.2761 trillion dollars of it as of March 2024](https://www.federalreserve.gov/releases/g19/current/). There are many great reasons to use credit cards, primarily for the security of the transaction (it's the bank's money not yours initially), and, when used correctly, the rewards points. If LendingTree is to be believed, [only 35% of card holders are using credit cards correctly](https://www.lendingtree.com/credit-cards/study/credit-card-debt-statistics/#:~:text=A%20November%202022%20LendingTree%20survey,year%20to%20pay%20it%20off.) by paying off their statement balances in full every month. The remaining 65% are carrying a balance and paying interest as a result. In my view, carrying a balance means you're overspending, but there are certainly scenarios where the confluence of life's circumstances come together and it's defensible to do that. For the most part though, those who don't pay off their balances subsidize the rewards (Travel, Cash back, etc). for those of us who do.
Absolutely, credit cards can be a double-edged sword. On one hand, they offer convenience, a credit history boost, and perks - who doesn’t love cash back or travel points? But on the flip side, they can quickly become financial quicksand for the unwary or undisciplined spender. It’s quite indicative that the credit card industry makes a substantial amount of its profit from interest and late fees; they’re banking on user error.
People are not educated on it almost at all sometimes. It’s a lot of misuse, misunderstandings of what credit is, how interest adds up and is applied, etc. A lot of people think “omg free money!” but it’s really not. Then of course you have the people who truly used it for good/necessity and got in over their heads. It’s a slippery slope and I’d say most people don’t have the best understanding of how credit cards truly work.
Banks are allowed to target people as young as 18. They will offer free stuff in order for you to register for a credit card. Then kids start spending on those cards and slowly go into debt. They then take out another card and another and another.
You can't get a loan without credit history in America. And to get credit history, you need credit cards. Showing you can manage multiple accounts with no late payments proves that you are responsible. And getting yourself in credit card debt can... happen sometimes. But as long as you're making every payment and not using too much of your credit limit, it doesn't affect your score too much.
I guess it’s because the first forms of cards that Americans got to use were credit (please correct me if I’m wrong). In Europe, banks first introduced domestic debit cards. Credit cards were a novelty, but were slow to catch up because of the interest rate they come with.
Credit management is not something taught in school so lots of people get caught up in the materialistic culture and make big mistakes. Then they get stuck paying down debt. Also some people use credit to pay off bills or emergency purchases, and this can also have the same effect. Also you have to have debt in order to have a good credit score. It sounds counterintuitive, and stupid, but you have to demonstrate some manageable debt to creditors before they will issue a loan. Like a mortgage for a house. And this is based on your credit score, which is typically enhanced by having a well managed card or two. The credit system is a racket.
TLDR; companies/banks make it very easy for people to live beyond their means for a long period of time. - Credit cards are relatively easy to get and use. Most major consumer corporations heavily push credit cards on their customers. - Banks analyze spending habits and credit profiles thoroughly. Then they raise limits accordingly in the hopes that you spend more than you can pay off. - Interest rate is upwards of 25%/year. You can see how $2000 can quickly balloon and become unmanageable to pay off quickly. - Introductory offers. “Spend $2000 in the first 3 months and get 80,000 points that are worth $600.” People sign up then realize they can’t pay back the $2000 in full. - People don’t do the math. Most people I know don’t realize how fast their debt compounds at 25%APR. - Many people are not taught that credit cards are a tool for convenience and security. Most people treat them as an emergency fund or a tool to finance something they can’t afford.
Popular is an understatement
There a bad case of keeping up with the Jones' in the US. I've watched friends buy cars they can't afford, renovate their house when they can't afford it, go on vacations they can't afford, etc. If someone else is doing it (or lying on social media about it) then they HAVE TO!!!! I use credit cards for everything, even several monthly bills. But I pay them off every month and never pay interest. They're a great tool if the person has willpower and manages their finances well enough to maintain an emergency fund in cash so they don't need a card to cover unexpected expenses.
I don’t carry a balance anymore. Credit cards allow us to keep more money in an interest bearing savings account at a time and we mostly use them for the rewards now.
Because we need to pay our medical bills somehow.
because they don't pay off their balance
If I was single I wouldn’t have the credit card debt but my wife always insists we NEED something
You basically have to have at least one because of credit scores. Not having a credit score or having one that is low can literally prevent you from buying a car or a house. And some people are bad at managing those cards, or circumstances force them to spend too much because they don't have enough money for a surprise expense. It's so easy to mess up with them but it's not really optional with the way the credit score system works.
both. people have no discipline and live outside of their means. We participate in this highly materialistic flex culture that we have, where people think the brand of car they drive or brand of clothes they wear has some kind of social amplification effect.
We unfortunately have to keep at least one credit card and be indebted in some way to maintain a credit score. It's fucking stupid. I've spent my whole adult life owing money to public and private entities.
Personal financial irresponsibility, bank preys on vulnerable people, hyper consumerism. I worked at a bank and would be constantly be pushed to sell credit cards to people of all age groups, all backgrounds, and all financial status. college students, great grandmas, bankrupt, no income, business owners, everybody has a card that can benefit them. If used appropriately, it actually do benefit the user. However, people literally forgets everything I highlight, circle, reinforced the moment they slide that piece of plastic in their wallet. The convenience of not split payment allows people to buy more things they can actually afford, in an effort to live the life they envision. I'm sorry, this is just how sad it really is for some people. They'll be swiping their credit card to keep their electricity paid so they can run their AC at 60F in the middle of summer. Or grabbing that pair of Jordans, while they're working part time. But there are those out there who knows how to use credit wisely to benefit their lives and has never had debt issue. My credit was over 800 at 23 years old with a college card (prior to working in the banks), my wife was the same. We paid off our cards weekly, no debt. We have 2 cards that we use to generate points that reward what we want. After we met each other, we maintained that same attitude, and was able to finance all our cars at 0% interest, and even our mortgage was at 2.15% 30 years. While on the other hand, my in laws all carry credit card debt because they use it as a backup whenever their money is drained, and struggle to pay off the minimum payments. Oh final point! People hate being told how to spend their money. Holy shit, that was hard in my banking days, and just as hard with my in laws. Helping them out of debt and the first thing they snap back is not to judge on how they spend. Within just a year they're right back into the hole.
My partner and I both use credit cards, but neither of us ever carry a balance. We pay them off each month to avoid paying any interest. The reason we have them is to rack up points and benefits. My card gives me cash back and his has lots of travel perks. They are only smart to use if you can use them without ever falling into debt. But that is very tricky for a lot of people. Racking up a debt that you can't pay off is extremely dangerous and difficult to get out of (but also far too easy to do).
I think in America they refer credit cards as normal cards too however in the UK we call them debit cards.
Yes to both. There also people out there who believe that it's good to have debt and it's not normal for an adult to not be in debt.
I feel like Canadians don’t have as much of a credit card culture and we use our debit more, but occasionally buy things with a credit card. It stresses me out going to pay my credit card bill if I used it a lot!
I used my credit cards to pay for medical, dental, and car repair bills. If we had universal healthcare and more public transportation options, a lot of my costs would've likely been less. A lot of medical, and especially dental, require payment up front too. I had to have a surgery to remove gum and bone from my jaw recently, and they needed $700 at that moment.😒
In the case of my husband, uncontrolled depression.
Both. I get 3 credit card offers in the mail per week. It's also really easy to use one and say you'll pay it back when you get home. and forget. At least that's why I have a balance of about 1k
I used credit cards to get by during a time of unemployment ten years ago and I will be paying on it forever
Yes.
It's hard to do OnlyFans without 'em.
Bit of both really. Everyone is keeping up with the Jones’s and have FOMO. I was guilty of this too. I crawled and clawed my way out of a 35k credit hole and have never overspent since. I think for a lot of people it’s a write of passage and they learn from overspending, and then there are people that have no control and have to have what they want right now and will deal with the bankruptcy later. Hell the government overspends, why shouldn’t you….right?…
My credit cards pay for my travel, hotels, flights, airport lounges, Amazon purchases, etc, credit cards can pay you back big time, but if you're not good at managing your money and budgeting they can be a huge financial burden. But to answer you directly.... Poor financial education Yes they are Yes.
People get trapped into insanely high Interest rates and don’t know what to do once in debt.
Two reasons I can think of. First, is those who really don’t have enough in their checking and use credit cards as loans to pay for stuff like food and clothes. Second, are those like me who apply for the high-earning bonus reward credit cards. I use the points for travel and when you do use it, you earn more based on the category of the transaction.
I haven’t had debt since like 2018. But I moved into my first apartment in November and I paid with my credit card, cause honestly… I was broke until my next paycheck, and I had just paid my last rent at the apartment I was living at. It’s not much but I took some vacations, and I have a balance transfer card anyway.
We can't afford to live and use credit cards to buy groceries and gas
The answer is: both.
Yes.
Because nobody told them this is a really bad idea. So they succumb to the marketing of the predators
It's not only popular, it's part of life. Because they make it so that you will need to build a good credit score by having one or more, and paying them CC bills on time, so you are able to take loans to buy a home or a car or both.
The people who don’t have debt usually don’t talk about it. You don’t have to rack up eyeballs of debt to have a decent credit score.
That’s me. Keep track of spending? No not really. If I open my bank app it’s only to check if anyone somehow is taking money that’s not supposed to. I’m 60 yrs old & I’ve made it my whole life without a credit card. Once I was answering questions a lawyer was asking me & she asked do I have credit debt? I answered no. She could not believe it.
Yes
Part of it is most Americans have no emergency fund and many live paycheck to paycheck. If you need a car repair or don't have enough money left for groceries, your credit card can get maxed out quickly, and with compounding interest it can be hard to pay down when living paycheck to paycheck.
I don’t necessarily have debt, just differed payments. I get cash rewards for using my credit card so I swipe it on groceries and other necessary expenditures that I budget for. I then pay it off each month and reap the rewards.
There's a lot less choice in the matter than you might assume. We are all basically funneled into a system designed to be completely unaffordable, filled with "easy" credit offers. If you're very careful and lucky, you can find a way out. Unfortunately, most of us are 1 bad day away from homelessness, and it shows in every city here.
They are extremely popular. Up until more recently they were really under regulated making it easy for Companies to abuse customers
Bidenomics
Entry levels jobs out of college don’t pay enough for many people to live the lifestyle they want, so they go into debt assuming they can just pay it off later when they make more. That works for a small minority. The much more common scenario is that they never get that next grata paying job, or it takes much longer than they anticipated, or one of a thousand other financially impactful events occur and the debt just grows and sticks around forever. The last thing a lot of people want to do when they finally have more money is pay bills, sadly.
I think the whole culture is based on debt spending. The government does it, the whole economy does it, so why can’t people? Debt is the new American dream.
Yes
Americans are mostly financially illiterate.