Credit Cards

[Jaggy Bunnet]

I had a Lowes credit card that got dropped after 6 months of no uses. (I was paying off the balance). They said I could re-instate the account though.

So basically this means that if I am to keep my Lowes account active I have to buy something every 6 months.

Extortion is the word I'd use.

How much money does it cost them to keep your information active in a database?

It's not just the admin cost. If you have a credit limit, they need to hold capital against that. If they aren't making any money out of you, they want to release that capital to support more profitable business.

 

[uruk]

It's not just the admin cost. If you have a credit limit, they need to hold capital against that. If they aren't making any money out of you, they want to release that capital to support more profitable business.

Isn't that a little inefficient? Isn't there just a large amount of capital drawing interest from which they provide the funds to cover your purchase. The credit limit is just a maximum that you can draw from that fund/capital.

 

[lylfyl]

Credit cards are such a bad idea!!! Debit cards can do anything credit cards can do, with none of the worry regarding interest. Why someone would take a loan out to buy a sandwich or a pen (which is what one is doing when using a credit card) is beyond me.

My wife and I paid off her credit cards (she hadn't used them in years) a few years ago and are better off for it.

My paycheck is every two weeks so pay day is not the same day of the month, unlike my mortgage e.g. first of the month. It's good to use credit cards for small things so my mortgage check doesn't bounce because I needed gas that morning.

Yes, the trick is to always pay it off completely, but it gives me a buffer if I need it. I usually pay off the credit early, as soon as my check clears, rather than waiting to the due date.

Yes, it sucks living paycheck to paycheck.

 

[Nursedan]

Credit cards are fine as long as you pay the balance every month, for the majority of cards that don't charge interest as long as you pay the full balance every month. Using them this way defers the payment up to a month, at no cost to you. However, if there is an annual or monthly fee, it negates this advantage though. Personally, any fee just to have the card is a deal breaker for me. If I get an offer with such a fee, it goes straight to the trash.

Why bother? What you're describing is nothing more than a disadvantaged debit card. So you get to defer payments on your pack of gum for a month? So what? You still have to pay for it. Why not just be responsible and pay for it right away and not live with the monthly stress of another bill in the mail?

Few people pay their balance every month. You know it and I know it. Why bother with the interest and fees of a credit card when cash or debit is so much more simple?

We wonder why debt is such an issue in this world, and then give advice to people to go into debt for their everyday purchases. Not good.

 

[Nursedan]

My paycheck is every two weeks so pay day is not the same day of the month, unlike my mortgage e.g. first of the month. It's good to use credit cards for small things so my mortgage check doesn't bounce because I needed gas that morning.

Yes, the trick is to always pay it off completely, but it gives me a buffer if I need it. I usually pay off the credit early, as soon as my check clears, rather than waiting to the due date.

Yes, it sucks living paycheck to paycheck.

Well, good for you if you pay the balance right away. Most people don't do that. Don't you have a grace period for your mortgage? Mine is due on the 1st too but I just sent the check yesterday.

Tell me - could you live without a credit card? If so, why don't you? And be rid of the stress of another bill and a huge interest rate looming over you?

 

[BobTheDonkey]

Well, good for you if you pay the balance right away. Most people don't do that. Don't you have a grace period for your mortgage? Mine is due on the 1st too but I just sent the check yesterday.

Tell me - could you live without a credit card? If so, why don't you? And be rid of the stress of another bill and a huge interest rate looming over you?

(edit to clarify: this is in addition to Nursedan's response, more directed to lylfyl)

I also am paid bi-weekly. I have no problem with paying my rent on time. In fact, 2x a year I have a full paycheck that I don't have to pay any bills out of.

So what if rent's due the 1st of every month? That just means that this next paycheck I get (even though it will be on the 21st) is the rent paycheck. Two weeks later I get the paycheck that pays the rest of my bills.

Living paycheck-to-paycheck isn't great, but it doesn't have to be as hard as you seem to make it out to be. 1 paycheck pays 1 part of the bills, the next paycheck pays the rest. Doing this throughout the year puts you ahead at least 2x (26 paychecks, 2x12mo = 24 billing cycles) throughout the year... Hell, sometimes I even get a bit ahead and pay bills early out of the rent paycheck (in addition to the regularly scheduled bills) - that just means I have a little more to put away/spend in the next paycheck.

 

[Supernovae]

I'm the same. They make money from the vendor on what I spend, and are kind enough to kick some of that back to me either in cashback or free flights. I don't pay them a fee or interest and also benefit from the fact that if the vendor goes bust, I can get my money back from the credit card company.

Why this is supposed to be a bad deal I'm not sure.

Say you're a vendor and you accept credit cards. The average credit card without rewards or bank card with visa/mc logo will cost you 2.2% of your total sale to process the charge. If its a rewards card that cost can be 5% or higher.

Those charges are reflected in the cost of goods you purchase.

That is also the reason 99.9% of the credit card terminals automatically opt you in for PIN based transaction since the PIN based ATM transaction is usually .25 cents or so per transaction.

Not to mention the credit card itself usually has an annual fee and if you do live paycheck to paycheck all it takes is once sick week or anything to happen and then your credit is defaulted to 29.9% and a 59.00 latefee is applied and you're done.

nothing is free.. but i guess as long as people think it is they won't bother to notice the fees they're paying in higher prices to begin with

 

[The Central Scrutinizer]

Say you're a vendor and you accept credit cards.

Say you're a vendor and you don't accept credit cards.

You won't be a vendor very long.

 

[Dave Rogers]

Say you're a vendor and you don't accept credit cards.

You won't be a vendor very long.

My local butcher doesn't accept credit cards. On Saturdays they have five men serving and there's always a long queue. They sell very good quality meat at very reasonable prices. I think they've been doing it for quite a long time.

Dave

 

[CORed]

Why bother? What you're describing is nothing more than a disadvantaged debit card. So you get to defer payments on your pack of gum for a month? So what? You still have to pay for it. Why not just be responsible and pay for it right away and not live with the monthly stress of another bill in the mail?

Few people pay their balance every month. You know it and I know it. Why bother with the interest and fees of a credit card when cash or debit is so much more simple?

We wonder why debt is such an issue in this world, and then give advice to people to go into debt for their everyday purchases. Not good.

Are you familiar with the concepts of cash flow and time value of money? Getting a short term, interest free loan is to my advantage. I will concede that for those who lack the discipline to avoid charging more than they can afford to pay off every month credit cards are a bad idea. The interest rates they charge makes carrying a balance for anything but an unexpected emergency expense a bad idea.

 

[The Central Scrutinizer]

My local butcher doesn't accept credit cards. On Saturdays they have five men serving and there's always a long queue. They sell very good quality meat at very reasonable prices. I think they've been doing it for quite a long time.

Dave

There are always exceptions. But I bet I can count on 1 hand the number of vendors who I've encountered in the last 10 years that don't accept credit cards.

 

[Nursedan]

Are you familiar with the concepts of cash flow and time value of money? Getting a short term, interest free loan is to my advantage. I will concede that for those who lack the discipline to avoid charging more than they can afford to pay off every month credit cards are a bad idea. The interest rates they charge makes carrying a balance for anything but an unexpected emergency expense a bad idea.

The loan is only interest free until you miss a payment or the cc company changes the terms of your agreement (which does happen).

If you pay off the balance each month, then I applaud you. As I said, most people don't, and many people have serious debt that adds up. I still don't see your benefit in having a cc.

Edit: Thought I should source my info; an article that states that only 30 percent of cc holders pay their balance each month.

http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/TheBigLieAboutCreditCardDebt.aspx

 

[wolfgirl]

If you pay off the balance each month, then I applaud you. As I said, most people don't, and many people have serious debt that adds up. I still don't see your benefit in having a cc.

You're saying "most people" don't pay off their card every month, but then saying you don't see the benefit to those of us who have told you repeatedly that we do pay it off every month.

If you don't pay it off every month, I totally agree that it's a bad thing.

If you do pay it off every month, I totally disagree with you that there is no benefit.

1. I earn really good cash-back bonuses.

2. I only pay one bill per month instead of several (utilities, doctors, etc.).

3. Balancing my check-book is easy because there aren't tons of debits in it, just a handful.

4. I never have to worry about forgetting to write down a debit-card use, thus making me think I have more money in my account than I do and getting overdrawn.

5. I never have to think "do I have the money in the account right now" when I make a purchase.

If you don't feel comfortable using a credit card, that's totally fine. But don't make blanket statements that all those of us who do so - and do so responsibly, and have done so for a really long time with no problems and only benefits - are making a bad decision. It works for us. We're not saying everyone should do it. Only that if you do it right, it's a good thing.

It's all about being honest with yourself about what you're capable of doing. If you will not be disciplined enough to only use the card for things you know you can pay for at the end of the month, don't do it. If you will sometimes forget to pay your bill on time so you will end up paying interest after all, don't do it.

 

[Nursedan]

Wolfgirl -

Pardon me, bit I have not been "repeatedly" told anything in this thread, so don't imply that I am obstinate.

Moving on - with all due respect, my opinion is that you represent an unfortunate trend in consumer spending. Apparently you pay your cc balance each month. That's great, but "not thinking" about how much money you are capable of spending at any certain time is flat out irresponsible. That's what I think.

As other critics of cc have said, no wealthy person ever got that way by cashing in their rewards points.

By the way, it's not that I don't feel comfortable using a cc, but that the risk/rewards of having one can't favor me, so I opt to not play a game I can't win.

 

[The Central Scrutinizer]

Moving on - with all due respect, my opinion is that you represent an unfortunate trend in consumer spending. Apparently you pay your cc balance each month. That's great, but "not thinking" about how much money you are capable of spending at any certain time is flat out irresponsible. That's what I think.

What on Earth does this even mean?

By the way, it's not that I don't feel comfortable using a cc, but that the risk/rewards of having one can't favor me, so I opt to not play a game I can't win.

Good for you.

 

[drkitten]

That's great, but "not thinking" about how much money you are capable of spending at any certain time is flat out irresponsible.

Not really. All it really indicates is that you have enough money available that you don't need to worry about how close you are to the edge for everyday purchases.

If I have between $5,000 and $25,000 in the bank at any given time, I don't especially care which if I'm buying a latte. (Yes, I'd check before I bought a car or a house -- but how often do I do that?) And if I have that much money lying around, I probably don't want just to keep it in a checking account (which pays no interest) or a savings account (which barely does); I have a money market account that pays substantially more,.... but from which I can only make five or so withdrawals over the course of a month.

So, credit cards (properly handled) can be a godsend. I accumulate $200 or so of bills, one latte at a time, and then withdraw $200 at the end of the month as a single transaction.

Now, of course, if you've instead got between $50 and $250, then the $200 of lattes can be a real problem. But if that's the case, it seems rather interesting that you're berating me for not keeping track of how many thousands I have in the account today.

 

[tensordyne]

It is a bad deal for the same reason that home loans are a bad deal. If you ever have to pay your credit card down the amount you pay at a minimum is based on how much left you owe, not a flat rate. If you owe me $100 and each payment below $20 has 20% go to interest that can really rack up the profits for me. Credit card companies are the most usurious lenders out there too.

 

[drkitten]

It is a bad deal for the same reason that home loans are a bad deal. If you ever have to pay your credit card down the amount you pay at a minimum is based on how much left you owe, not a flat rate. If you owe me $100 and each payment below $20 has 20% go to interest that can really rack up the profits for me. Credit card companies are the most usurious lenders out there too.

I have no idea what this means....

 

[Almo]

Wait wait wait wait wait wait.

I thought credit card companies took 4% or something off the top of every transaction using their card! If I'm right about this, they still make money off us even though we never carry a balance.

 

[Segnosaur]

It is a bad deal for the same reason that home loans are a bad deal. If you ever have to pay your credit card down the amount you pay at a minimum is based on how much left you owe, not a flat rate. If you owe me $100 and each payment below $20 has 20% go to interest that can really rack up the profits for me. Credit card companies are the most usurious lenders out there too.

I can think of several reasons why credit carts would expect to charge higher interest than home loans:

- More risk. There's no collateral with a credit card. So, banks have to charge more to cover people who skip out/default. (At least with a home loan the bank can recoup most of its money by repossessing the house.)

- Nature of the transactions requires more overhead (i.e. hundreds of small transactions over a year, as opposed to a once-per-month mortgage payment.) means more computer processing is needed, more infrastructure, more personnel to handle complaints, etc.