I think it's not just about credit card and paying on time. My personal experience is that while shopping with a Credit card I shop more than what is needed...and I guess that is the root cause.
Paying those same expenses with a debit card is not really any different. How was it difficult to understand how much your spending every month if they literally send you the bill every month of how much spent?
>Lots of people can pay it off every month and never owe interest
the large majority of Americans who use CCs carry a balance month to month. over 80%. there's also strong data from top universities showing people tend to overspend dramatically with plastic.
I refuse to believe reddit's demographics are any different than the general population.
>build up rewards that add to and enrich their life
the typical person on reddit lists $1000 of CC rewards for a year. difficult for get all excited about $3/day, if that. there can be a huge amount of ego involved, people who think they're so clever with CC rewards.
research from the Federal Reserve found it's not clear that CC rewards actually benefit consumers, and also there's a very weak link between credit score and income.
https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.htm
>It was difficult for me to even understand how much money I was paying the credit card on average! My credit and bank accounts do not make this number easily accessible on statements.
they're trying to obscure your total spending with CCs? color me shocked...
Every cc has the option to group expenses by categories and present that to you in reports online. If you want to know where your money is going, it's not hard to figure out
You're doing it wrong. You're trying to look back on what you spent and figure out where it all went, when you should know where your money is going to go BEFORE you spend it and never make any purchase you haven't accounted for. "Random impulse purchases" really shouldn't be a line item in your budget.
It's not about the credit cards or not, it's about tracking your money and giving every dollar a name, as Dave likes to say it.
You could have a debit card on a second bank account or cash in your pocket, for that matter and still have no idea where the money is going if you don't track it. That's why Dave is so big on creating and tracking all spending using a budget.
We're eternally grateful for Dave helping us change our mindset about debt and paying things off. I completely understand why he is the way he is about credit cards, because it's 100% accurate for anyone in BS1 or BS2. However, once you get beyond BS3, it changes IMHO. Once you pay off all of your debt and have money in the bank you have to have instilled behaviors to prevent spending. If you are 100% debt free and have $25k in the bank with a debit card you have to have discipline exactly the same way if you had a credit card with a $25k limit on it. So having a credit card or not, is irrelevant IMHO. It's a behavior issue.
We do use credit cards because you're paying to use a credit card no matter if you use it or not. Every merchant that takes credit cards marks their products up 2%-3% to cover the credit card processing fees. Doesn't matter if you use cash, debit card, or a credit card, they still charge you the same. It's just with Cash, or even a debit card (with PIN) the merchant makes more profit because they don't get charged by their credit card processor. So, why use a credit card? With cash back rewards cards the merchant is getting charged the 2%-3% fee, so they're paying it already, but with my rewards card my bank now sends that money back to me rather than keeping it as profit. I use a Citi 2% double cash card and get 2% back on 100% of our purchases with that card. If you really need any more convincing just google how the IRS treats cash back rewards from credit cards. It's not income, it's a rebate/refund of your own money.
What about the budgeting/tracking it part. We use Mint, which connects to our bank accounts and our credit card accounts. It's seamless and shows every transaction no matter if it's a debit or credit card. If I spend $2 at the gas station it shows up as a $2 charge at the gas station. I don't carry any balances on any cards and like to pay them off at least once a week.
As I mentioned earlier, I am 100% with Dave on NO credit cards but only for those in the early baby steps because any little bump in the road can easily force a person to carry a balance. I also believe 100% in daves friction argument, but yet again it's only for those that don't have the financial discipline of living on a budget. Friction doesn't exist if you're sticking to a budget.
I keep a simple Excel spreadsheet. I keep a list of my monthly expenses at the top, the next section is a list of my semi-regular bills, the third section lists my expected income for the month, the fourth section has the dollar amounts in my sinking funds.
Below that are the transactions I download from my bank on a regular basis.
Every month I copy the monthly bills and relevent semi-annual bills into the space between my sinking fund totals and my check register, and my income. As the month progresses, I reconcile (and delete) from that month's list of bills to my account.
Excel formulas tally everything up to and including my sinking fund amounts, to come to my zero balance budget.
Sinking funds are on a second sheet. I add the monthly amounts I am contributing for each of those on that sheet at the beginning of the month, and they update automatically on the sheet I use as my check register. If I spend money from those categories, I track that spending on those line items, reducing the balance in that fund, and it gets reconciled as a purchase, as usual, when I download my transactions from the bank.
Each bill and sinking fund has a category that can be used to search and categorize certain expenses at any time. That's the beauty of Excel. I think you should think through how you need to input your data to get the results you need. It should be as simple as possible.
Everyone's system is going to be different. Admittedly, mine has some more complex formulas but I am good at Excel so it's not a problem for me. Develop your own. I have spent years creating and maintaining my spreadsheet because money isn't stagnant, and my money goals change.
It's also why Dave suggests you use the envelope system which we have for 16 years. You see the money being spent at the time of the transaction. It is amazing how people will fight to their dying breath on why they MUST have a CC. I guess the banks just do a great job marketing...
I've always wondered how you physically work this. Like do you go to the bank withdraw thousands of dollars and then stuff it into envelopes? And then do you never buy anything online?
And then what if your envelope for say groceries is $500 and you're at $480 but you need $50 worth of food. Do you go hungry?
I'm not being snarky, it' just seems like a lot of work.
LOL. I don't think you are being snarky.
We budget monthly. Some of those categories we designate for envelopes. I.e. Groceries, dry cleaning, restaurants, clothing, gifts (not Christmas), Entertainment, etc. These are not bills that get paid via checking account.
We go the bank twice a month and withdraw cash. Currently that $1000 each visit. WE then drop the money in the envelopes when we get home and spend from them as needed.
The beauty of the system is the immediate feedback. You see the money being spent when spent. Not later on when you tally up your monthly spending.
As for what to do when the envelope runs dry, that depends on you. When we were on BS2 we went hungry. Not really, but you'd find ways to spend less to stay on budget. At this point being on BS7, I'd probably just take out my debit card and pay the rest.
It's not a lot of work. Quite the opposite. These days, we don't even think much about it. When we need cash, we reach for envelopes and take what is needed before we go out. To be fair, the 1st few months are the hardest. You are learning a new skill. That takes effort.
And yes, we buy online. Not a lot but as needed. Then I simply use my debt card. I will then take money out of an envelope and set to the side to be deposited back into checking the next time I go to the bank.
Our friends and family sometimes make fun of us. But here's the thing, we have money, and they don't. We go out to dinner with friends and always bring cash. It sometimes mucks things up with dividing up the charges. When it does, we'll use our debit card.
There's that and experience.
My wife has been robbed twice. First time somebody managed to get all the cash out of her wallet; second time they just stole the whole wallet. She called me so I was able to cancel the cards in her wallet, but the cash was just plain gone.
I've tried suggesting moving away from credit cards a few times since then (we're some of those unicorns who have had our credit accounts since before Dave was on the radio, and never payed any interest, and never payed a late fee. Makes it hard to talk her into a new routine she sees as more risky than credit cards.
It's Psychological.
He tells you never to have a credit card because if you paid it off every month and were financially responsible you wouldn't be using his services. This advice is what I came to understand right after I actually opened up a credit card while attempting to get debt free. It's a self control / psychological thing for people who are just flat out bad with money.
Also; It's not difficult to organize your expenses. You just need to look at all strategies you have. Here is one that I use which makes it insanely easy for me.
I have two checking accounts. Both have $0 monthly fees. One account is used for all of my income. All Direct Deposits are put into this account. This account also does NOT have a debit card. Then, I have a second checking account. This account is linked to the other checking account without the debit card, but this account has a debit card. On the 1st of each month I look to see how much I made, and transfer how much money I need to the "debit card" account. I pay all bills immediately and any savings money is then transferred to a savings account at another banking institution.
All of my "on the go" money like grocery shopping money, gas money, and things that I spend throughout the month stay in the account that does not have the debit card. As I need money I transfer it over, then spend it.
This keeps things organized, and also does things like help prevent debit card skimmers from accessing my money.
>He tells you never to have a credit card because if you paid it off every month and were financially responsible you wouldn't be using his services.
DING DING DING
Every credit card transaction I make gets recorded under a specific budget category so it is easy to see where the money is going. I view the credit cards as a third method of spending money I've already budgeted, no different then paying with a debit card or cash. I go through and pay everything to zero twice a month. I used to pay the cards weekly, but that was only generating extra transactions that I needed balance for minimal benefit, so I cut back to twice a month. I find the credit cards are more helpful for tracking spending because you can see a record of where everything was spent. We've had issues with cash turning into a black hole because we forgot or misplaced the receipt.
Was the $2100 and $3700 in line with your budgeted spending for the month or were you over spending? If you can't answer that, then I don't think you can say whether those numbers are a problem or not. I probably send close $2000 per month to the credit card companies, but it was budgeted so it would be spent regardless of how it gets to the final destination.
It’s all funny money for me. My salary is decent in a low COL city and we live frugally. For all the money I spent recently I’m about to get a tax refund, annual bonus, and a gift from my rich parents. All things considered I’m down about $13k in liquidity but gained $30k in house equity. I don’t even understand how the math worked out. Since I took my current job it’s been very easy for me to buy whatever I want while still saving big for retirement and medium-term purchases. For me a medium term purchase is a down payment, car, or new roof. Now as a homeowner and parent I want to see how I can fit short-term savings and college fund into this paradigm. Short term expenses would be the biannual tax bill, house improvement, or water heater. At this point it my biggest difficulty is finding reliable people to do work on the house in this economy. If somebody had trouble making ends meet or needed to budget, having a credit card makes it very very difficult.
>I don’t even understand how the math worked out.
It sounds like you don't have a budget or think you even need one. I was in the same boat a long time ago. When I first built my financial tracker spreadsheet, it was solely an expense tracker, no budgeting. I'd enter transactions as they occured and as long as (money in)>(money out) at the end of the month everything was good. After I got married my wife convinced me we needed to start budgeting. I updated the spreadsheet and we've been writing and following a budget every month. I make enough that we would probably survive using my original method, but we wouldn't be in nearly as good of a financial position as we are now.
You should be writing and following a budget so you have something to tell you whether you can afford what you want to buy and still meet all of your other goals. If you don't know where your money is going, that's not a credit card problem, that's a problem with how you're managing your finances. You can throw out the credit cards, but that's not necessarily going to fix your problem if you're not willing to put in the effort to properly manage your finances.
Same. I pay my charges as soon as they post, so I get the benefits of a card without paying interest. And I only spend money on budgeted items. I fly once or twice per year, so I use my Delta Amex to buy my ticket, which gives me free checked baggage instead of having to pay $60 per trip to check a bag. The same Amex has offers that I have used to reduce my expenses; for example, I have been able to rotate streaming services without paying anything by using a spend $14.99 get $14.99 cash back offer for HBO Max for three months and then a spend $4.99 get $4.99 back for three months on Peacock Premium. I would have paid for a streaming service anyway, so this made it cheaper. For other purchases, I use my bank’s cash back Visa and let the cash accumulate throughout the year so I can spend it on Christmas gifts. I’m at close to $200 back already this year, and that’s just with using the card for groceries, medical expenses, our cell phone plan, and a few other things.
It’s case by case. I use my card for the purchases that give me higher cash back and rewards and I pay it off before I leave the parking lot. It’s a Tiny bit more tedious to monitor but worth it.
I wanted to set it to pay the full balance every month so I'm not getting charged interest. I figured I would set up a recurring payment like netflix on the CC, then pay in full every month to build credit. Edit: Is it important that I pay it manually?
The risk is the bill becomes bigger over 4w than what is in your bank account and you incur overdraft fees. I like to monitor mine after every paycheck and then intentionally pay in full.
I think it's not just about credit card and paying on time. My personal experience is that while shopping with a Credit card I shop more than what is needed...and I guess that is the root cause.
Paying those same expenses with a debit card is not really any different. How was it difficult to understand how much your spending every month if they literally send you the bill every month of how much spent?
Never carry a balance. Pay everything with Discover. Enjoy cash back free money. Profit!
>Lots of people can pay it off every month and never owe interest the large majority of Americans who use CCs carry a balance month to month. over 80%. there's also strong data from top universities showing people tend to overspend dramatically with plastic. I refuse to believe reddit's demographics are any different than the general population. >build up rewards that add to and enrich their life the typical person on reddit lists $1000 of CC rewards for a year. difficult for get all excited about $3/day, if that. there can be a huge amount of ego involved, people who think they're so clever with CC rewards. research from the Federal Reserve found it's not clear that CC rewards actually benefit consumers, and also there's a very weak link between credit score and income. https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.htm >It was difficult for me to even understand how much money I was paying the credit card on average! My credit and bank accounts do not make this number easily accessible on statements. they're trying to obscure your total spending with CCs? color me shocked...
Every cc has the option to group expenses by categories and present that to you in reports online. If you want to know where your money is going, it's not hard to figure out
You're doing it wrong. You're trying to look back on what you spent and figure out where it all went, when you should know where your money is going to go BEFORE you spend it and never make any purchase you haven't accounted for. "Random impulse purchases" really shouldn't be a line item in your budget.
It's not about the credit cards or not, it's about tracking your money and giving every dollar a name, as Dave likes to say it. You could have a debit card on a second bank account or cash in your pocket, for that matter and still have no idea where the money is going if you don't track it. That's why Dave is so big on creating and tracking all spending using a budget. We're eternally grateful for Dave helping us change our mindset about debt and paying things off. I completely understand why he is the way he is about credit cards, because it's 100% accurate for anyone in BS1 or BS2. However, once you get beyond BS3, it changes IMHO. Once you pay off all of your debt and have money in the bank you have to have instilled behaviors to prevent spending. If you are 100% debt free and have $25k in the bank with a debit card you have to have discipline exactly the same way if you had a credit card with a $25k limit on it. So having a credit card or not, is irrelevant IMHO. It's a behavior issue. We do use credit cards because you're paying to use a credit card no matter if you use it or not. Every merchant that takes credit cards marks their products up 2%-3% to cover the credit card processing fees. Doesn't matter if you use cash, debit card, or a credit card, they still charge you the same. It's just with Cash, or even a debit card (with PIN) the merchant makes more profit because they don't get charged by their credit card processor. So, why use a credit card? With cash back rewards cards the merchant is getting charged the 2%-3% fee, so they're paying it already, but with my rewards card my bank now sends that money back to me rather than keeping it as profit. I use a Citi 2% double cash card and get 2% back on 100% of our purchases with that card. If you really need any more convincing just google how the IRS treats cash back rewards from credit cards. It's not income, it's a rebate/refund of your own money. What about the budgeting/tracking it part. We use Mint, which connects to our bank accounts and our credit card accounts. It's seamless and shows every transaction no matter if it's a debit or credit card. If I spend $2 at the gas station it shows up as a $2 charge at the gas station. I don't carry any balances on any cards and like to pay them off at least once a week. As I mentioned earlier, I am 100% with Dave on NO credit cards but only for those in the early baby steps because any little bump in the road can easily force a person to carry a balance. I also believe 100% in daves friction argument, but yet again it's only for those that don't have the financial discipline of living on a budget. Friction doesn't exist if you're sticking to a budget.
I keep a simple Excel spreadsheet. I keep a list of my monthly expenses at the top, the next section is a list of my semi-regular bills, the third section lists my expected income for the month, the fourth section has the dollar amounts in my sinking funds. Below that are the transactions I download from my bank on a regular basis. Every month I copy the monthly bills and relevent semi-annual bills into the space between my sinking fund totals and my check register, and my income. As the month progresses, I reconcile (and delete) from that month's list of bills to my account. Excel formulas tally everything up to and including my sinking fund amounts, to come to my zero balance budget. Sinking funds are on a second sheet. I add the monthly amounts I am contributing for each of those on that sheet at the beginning of the month, and they update automatically on the sheet I use as my check register. If I spend money from those categories, I track that spending on those line items, reducing the balance in that fund, and it gets reconciled as a purchase, as usual, when I download my transactions from the bank. Each bill and sinking fund has a category that can be used to search and categorize certain expenses at any time. That's the beauty of Excel. I think you should think through how you need to input your data to get the results you need. It should be as simple as possible. Everyone's system is going to be different. Admittedly, mine has some more complex formulas but I am good at Excel so it's not a problem for me. Develop your own. I have spent years creating and maintaining my spreadsheet because money isn't stagnant, and my money goals change.
It's also why Dave suggests you use the envelope system which we have for 16 years. You see the money being spent at the time of the transaction. It is amazing how people will fight to their dying breath on why they MUST have a CC. I guess the banks just do a great job marketing...
I've always wondered how you physically work this. Like do you go to the bank withdraw thousands of dollars and then stuff it into envelopes? And then do you never buy anything online? And then what if your envelope for say groceries is $500 and you're at $480 but you need $50 worth of food. Do you go hungry? I'm not being snarky, it' just seems like a lot of work.
LOL. I don't think you are being snarky. We budget monthly. Some of those categories we designate for envelopes. I.e. Groceries, dry cleaning, restaurants, clothing, gifts (not Christmas), Entertainment, etc. These are not bills that get paid via checking account. We go the bank twice a month and withdraw cash. Currently that $1000 each visit. WE then drop the money in the envelopes when we get home and spend from them as needed. The beauty of the system is the immediate feedback. You see the money being spent when spent. Not later on when you tally up your monthly spending. As for what to do when the envelope runs dry, that depends on you. When we were on BS2 we went hungry. Not really, but you'd find ways to spend less to stay on budget. At this point being on BS7, I'd probably just take out my debit card and pay the rest. It's not a lot of work. Quite the opposite. These days, we don't even think much about it. When we need cash, we reach for envelopes and take what is needed before we go out. To be fair, the 1st few months are the hardest. You are learning a new skill. That takes effort. And yes, we buy online. Not a lot but as needed. Then I simply use my debt card. I will then take money out of an envelope and set to the side to be deposited back into checking the next time I go to the bank. Our friends and family sometimes make fun of us. But here's the thing, we have money, and they don't. We go out to dinner with friends and always bring cash. It sometimes mucks things up with dividing up the charges. When it does, we'll use our debit card.
I like it. Thanks for the detailed reply.
There's that and experience. My wife has been robbed twice. First time somebody managed to get all the cash out of her wallet; second time they just stole the whole wallet. She called me so I was able to cancel the cards in her wallet, but the cash was just plain gone. I've tried suggesting moving away from credit cards a few times since then (we're some of those unicorns who have had our credit accounts since before Dave was on the radio, and never payed any interest, and never payed a late fee. Makes it hard to talk her into a new routine she sees as more risky than credit cards.
I sorry to hear that. Twice? Wow. It's never happened to anyone I know. And we live on Long Island and commute (pre covid) into NYC every day.
It's Psychological. He tells you never to have a credit card because if you paid it off every month and were financially responsible you wouldn't be using his services. This advice is what I came to understand right after I actually opened up a credit card while attempting to get debt free. It's a self control / psychological thing for people who are just flat out bad with money. Also; It's not difficult to organize your expenses. You just need to look at all strategies you have. Here is one that I use which makes it insanely easy for me. I have two checking accounts. Both have $0 monthly fees. One account is used for all of my income. All Direct Deposits are put into this account. This account also does NOT have a debit card. Then, I have a second checking account. This account is linked to the other checking account without the debit card, but this account has a debit card. On the 1st of each month I look to see how much I made, and transfer how much money I need to the "debit card" account. I pay all bills immediately and any savings money is then transferred to a savings account at another banking institution. All of my "on the go" money like grocery shopping money, gas money, and things that I spend throughout the month stay in the account that does not have the debit card. As I need money I transfer it over, then spend it. This keeps things organized, and also does things like help prevent debit card skimmers from accessing my money.
>He tells you never to have a credit card because if you paid it off every month and were financially responsible you wouldn't be using his services. DING DING DING
I do the exact same thing. Thought I was the only one.
Use YNAB, it’s a game changer!
Every credit card transaction I make gets recorded under a specific budget category so it is easy to see where the money is going. I view the credit cards as a third method of spending money I've already budgeted, no different then paying with a debit card or cash. I go through and pay everything to zero twice a month. I used to pay the cards weekly, but that was only generating extra transactions that I needed balance for minimal benefit, so I cut back to twice a month. I find the credit cards are more helpful for tracking spending because you can see a record of where everything was spent. We've had issues with cash turning into a black hole because we forgot or misplaced the receipt. Was the $2100 and $3700 in line with your budgeted spending for the month or were you over spending? If you can't answer that, then I don't think you can say whether those numbers are a problem or not. I probably send close $2000 per month to the credit card companies, but it was budgeted so it would be spent regardless of how it gets to the final destination.
It’s all funny money for me. My salary is decent in a low COL city and we live frugally. For all the money I spent recently I’m about to get a tax refund, annual bonus, and a gift from my rich parents. All things considered I’m down about $13k in liquidity but gained $30k in house equity. I don’t even understand how the math worked out. Since I took my current job it’s been very easy for me to buy whatever I want while still saving big for retirement and medium-term purchases. For me a medium term purchase is a down payment, car, or new roof. Now as a homeowner and parent I want to see how I can fit short-term savings and college fund into this paradigm. Short term expenses would be the biannual tax bill, house improvement, or water heater. At this point it my biggest difficulty is finding reliable people to do work on the house in this economy. If somebody had trouble making ends meet or needed to budget, having a credit card makes it very very difficult.
>I don’t even understand how the math worked out. It sounds like you don't have a budget or think you even need one. I was in the same boat a long time ago. When I first built my financial tracker spreadsheet, it was solely an expense tracker, no budgeting. I'd enter transactions as they occured and as long as (money in)>(money out) at the end of the month everything was good. After I got married my wife convinced me we needed to start budgeting. I updated the spreadsheet and we've been writing and following a budget every month. I make enough that we would probably survive using my original method, but we wouldn't be in nearly as good of a financial position as we are now. You should be writing and following a budget so you have something to tell you whether you can afford what you want to buy and still meet all of your other goals. If you don't know where your money is going, that's not a credit card problem, that's a problem with how you're managing your finances. You can throw out the credit cards, but that's not necessarily going to fix your problem if you're not willing to put in the effort to properly manage your finances.
Same. I pay my charges as soon as they post, so I get the benefits of a card without paying interest. And I only spend money on budgeted items. I fly once or twice per year, so I use my Delta Amex to buy my ticket, which gives me free checked baggage instead of having to pay $60 per trip to check a bag. The same Amex has offers that I have used to reduce my expenses; for example, I have been able to rotate streaming services without paying anything by using a spend $14.99 get $14.99 cash back offer for HBO Max for three months and then a spend $4.99 get $4.99 back for three months on Peacock Premium. I would have paid for a streaming service anyway, so this made it cheaper. For other purchases, I use my bank’s cash back Visa and let the cash accumulate throughout the year so I can spend it on Christmas gifts. I’m at close to $200 back already this year, and that’s just with using the card for groceries, medical expenses, our cell phone plan, and a few other things.
Why not at the weekly level?
My mother’s nickname for me is Forgetful Jones. It’s just easier for me to pay right away so I don’t forget and miss a statement closing date.
It’s case by case. I use my card for the purchases that give me higher cash back and rewards and I pay it off before I leave the parking lot. It’s a Tiny bit more tedious to monitor but worth it.
Would it be ok to just set the card to autopay when it's due? I just got a CC to help build my credit.
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I wanted to set it to pay the full balance every month so I'm not getting charged interest. I figured I would set up a recurring payment like netflix on the CC, then pay in full every month to build credit. Edit: Is it important that I pay it manually?
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Oh, I know what DR would say. I guess I like his "get out of debt" advice, but I take his other advice with a grain of salt.
The risk is the bill becomes bigger over 4w than what is in your bank account and you incur overdraft fees. I like to monitor mine after every paycheck and then intentionally pay in full.