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[I'm an expert]

Remember that credit vs debit card thread?

Or the tax brackets thread lol. You'd think GAF would skew towards the smarter people just from how technically savvy people here are.

 

[thefro]

Here's why you should always use a credit card and only use your debit card at the ATM:

1. Cashback bonus, free air miles, occasional discounts
2. Stronger protection against fraud. There's a video going around the Internet that shows a woman confronting a Starbucks clerk that stole her card information. "You took money from my family!" she says. "The bank is giving it back." Sounds like she was using a debit card. Although you can get reimbursed after debit card fraud, you still have to wait for that money to be put back into your account. With a credit card, they'll simply void the transaction and you never have to pay it.
3. Extended warranties. Amex, for example, will double the manufacturer's warranty of whatever electronic gadgets you purchase.
4. Builds your credit score so you can get a less expensive mortgage, car loan, etc.

Obviously, none of these apply if you have terrible credit, or lack the personal discipline to spend within your means.

Yep... you should be basically using your credit card as a debit card and just using it to buy things that are within your budget (which should include an amount of money for emergencies).

The system is set up so that you're better off paying that way instead of using cash since merchants pass along the credit card transaction fee cost to everyone in the vast majority of cases.

The merchants get benefits too from accepting cards... more business, people buy stuff they can't afford, they don't have to worry about a cashier screwing up the transactions or someone stealing the money a customer paid en route to the bank.

 

[Magitex]

Credit card companies make most of their money from transaction fees, not from debt. If you just use it as a debit card and pay it off every month, there is no problem.

Is it also immoral of banks to give people a mortgage? Or to provide businesses with credit and loans?

It's all about how you use it. Of course if you are not going to use it the right way, better stay away from it. There is nothing wrong with that.

There's no way they don't bank from people who can't pay off their credit card every month. How many thousands do you think my parents racked up in interest over forty years? Credit companies love these people.

The difference between a mortgage and a credit card is spending habits. Not to say that a mortgage can't put you in over your head or that you can't remortgage and buy a boat.
Just that with a credit card it is very easy to get into a situation you can't get out of easily.

Credit companies are really the ones profiting here while individuals see very little gain and often see financial ruin over very small sums of money. Maybe you don't see it often enough, I'm glad for you.

Enjoy your non existant credit score and sudden realization one day that they use that score for houses, cars, renting, ect. I think the it's silly to have this philosophy

I don't live in a country controlled by these. Not that I've ever got a loan for anything but the house. edit: The fact that you have to rely on them makes it all the more exploitative to me.

 

[User 479360]

So, what does happen to someone's accumulated credit card debt when they die?

 

[TatteredHat]

So, what does happen to someone's accumulated credit card debt when they die?

You are immortal until you pay off your credit debt.

 

[markofhavoc]

I don't live in a country controlled by these. Not that I've ever got a loan for anything but the house. edit: The fact that you have to rely on them makes it all the more exploitative to me.

Well if you don't live here, then it's probably not as big. My sister has the same philosophy and it drives me crazy because she goes the extra step and didn't have a bank account

 

[TedNindo]

that might be a good way to prevent someone from going into debt, but using a credit card instead of a debit card is added protection in the case of a hack like what happened at target

if someone got access to your information at least they wouldn't immediately have access to all of your cash

That almost never happens. And most of the money is in a savingsaccount and you only transfer a certain amount to your debit card`s account.

 

[industrian]

You'd think GAF would skew towards the smarter people just from how technically savvy people here are.

I made the mistake thinking that as well.

And I would argue that most people on GAF aren't really tech savvy at all. Gaming side in particular.

 

[Magitex]

So, what does happen to someone's accumulated credit card debt when they die?

Debt collectors usually take any and everything of value said person had. If you signed any contracts with said deceased, you may very well be footing the bill. Credit debt comes out last from the estate however. Amusingly, debtors may chase the deceaseds family and attempt to scam them into paying it. Not sure if there are laws against it yet.

These kind of debt laws vary by country/state however.

 

[I'm an expert]

I made the mistake thinking that as well.

And I would argue that most people on GAF aren't really tech savvy at all. Gaming side in particular.

You're actually right now that GAF has grown. Old school GAF was much more hardcore/niche.

 

[winjet81]

Spent 10 years on and off with CC debt because I was constantly handling all my finances in my head.

Finally had enough and took some friends' advice about a year ago: get YNAB and start budgeting properly.

Now, instead of falling behind $200-300 a month because of interest payments and such, I am up about $800-900 a month and finally have financial piece of mind.

 

[NimbusD]

And people think that only the big banks and wall street are to blame for the Great Recession.

Yes, the banks who just go giving credit to everyone under the sun are indeed to blame. Do you even understand what happened?


Anyway as far as the topic at hand. It's an unfortunate education problem. It still astounds me that finance isn't taught in schools in America. It's something that everyone has to deal with and has catastrophic consequences when you don't understand the basics of it. The closest you get is the occasional calculus word problem that isn't even based on real life scenarios.

 

[Kenstar]

I see people in this very thread posting wrong info about interest rates

Credit cards are compound interest. That's to say, you get charged interest on your balance. Then the interest plus your balance less the amount you pay off becomes your new balance. For example, say your interest is 10% and your balance is $1,000. If you don't pay any of it off your interest is $100 and your new balance is $1,100 and if you still don't pay it then your interest is now $110 and your new balance is $1,210.

Now I'm not 100% about this part because it's never happened to me and people seem to give conflicting opinions on it, so if someone does know, please do say.

Say you have a balance at the end of October, you don't pay it off in time, and you're charged interest. In November if you still have that unpaid balance, does everything you use your credit card on get charged with interest immediately, or only at the end of the month and you not paying like with October?

interest rates are YEARLY. To find the monthy charge, divide by 12
24% interest on a 1000 balance owed at the end of january is not $240, it is 24/12=2%, or $20. So no, you wont suddenly owe %20 more one month because you had a brain fart, you'll owe 2% more each month and if you have a year long brain fart, that's a long fart and you should see a doctor.

 

[Krauser Kat]

i just abuse my visa amazon card to get points for amazon and use amazon store card for interest free purchases on stuff i dont feel like paying for right away. One gets paid off every month, the other is on a payment plan to be paid off before any interest hits.

 

[Krauser Kat]

I see people in this very thread posting wrong info about interest rates





interest rates are YEARLY. To find the monthy charge, divide by 12
24% interest on a 1000 balance owed at the end of january is not $240, it is 24/12=2%, or $20. So no, you wont suddenly owe %20 more one month because you had a brain fart, you'll owe 2% more each month and if you have a year long brain fart, that's a long fart and you should see a doctor.

Really its less than than that if the minimum payment actually removes some principal but usually its terrible at that.

 

[Kenstar]

Really its less than than that if the minimum payment actually removes some principal but usually its terrible at that.

IIRC they changed how min payments work and now they have to tell you along with the min payment how much you need to pay to clear the debt in x years (e.g Min payment $50, $125 needed to pay debt in 2 years, $75 needed to pay debt in 5 years)

Previously all they told you was min payment (paying off interest only)

 

[User 479360]

Debt collectors usually take any and everything of value said person had. If you signed any contracts with said deceased, you may very well be footing the bill. Credit debt comes out last from the estate however. Amusingly, debtors may chase the deceaseds family and attempt to scam them into paying it. Not sure if there are laws against it yet.

These kind of debt laws vary by country/state however.

So people can just rack up debt, and die with it. If they have anything it will be taken, but if they have nothing, the bank is screwed.

 

[Purkake4]

Or the tax brackets thread lol. You'd think GAF would skew towards the smarter people just from how technically savvy people here are.

The chip & pin confusion thread was a riot as well.

So people can just rack up debt, and die with it. If they have anything it will be taken, but if they have nothing, the bank is screwed.

The risk is included in the service fees (for everyone) the banks aren't stupid. Inheriting debt works differently by country, here it's all or nothing you either inherit everything (debt and assets) or nothing (the creditors sort it out).

 

[Super Nothing]

i just abuse my visa amazon card to get points for amazon and use amazon store card for interest free purchases on stuff i dont feel like paying for right away. One gets paid off every month, the other is on a payment plan to be paid off before any interest hits.

You're better off using points racked up on the Amazon card to buy statement credits. If you pay for stuff on Amazon with your points, then you don't get the 3% bonus points back on that purchase, you just get the price reduced by the amount of points you have. So, if you buy something that costs $100 with points, then you spend $100 worth of points and get nothing back. If you charge that exact same $100 purchase to the card and then apply your points to a statement credit for $100, then you pay off the purchase and get $3 in rewards points.

 

[DarkHeartedKill]

I see people in this very thread posting wrong info about interest rates





interest rates are YEARLY. To find the monthy charge, divide by 12
24% interest on a 1000 balance owed at the end of january is not $240, it is 24/12=2%, or $20. So no, you wont suddenly owe %20 more one month because you had a brain fart, you'll owe 2% more each month and if you have a year long brain fart, that's a long fart and you should see a doctor.

I meant to say purchase rate, which is what you get charged if you have a balance and don't pay in time. For example, here it's 19.99%. My siblings have not paid in time before and they were charged 19.99% of the the balance as interest. But yeah, you are right with the interest rate, just some places will say if it's perannum or monthly.

 

[HTupolev]

So, what does happen to someone's accumulated credit card debt when they die?

If the creditor had agreed to discharge a debt upon death (i.e. federal student loans), then obviously the creditor just takes the hit.

If there was another person who was co-signed in some manner as responsible for that debt (often is the case with spouses), then the debt tends to fall to the co-signer.

Otherwise, the creditor can go after the estate. If the estate can pay the debt, things are simple. Otherwise, the creditor can take a hit.

So people can just rack up debt, and die with it. If they have anything it will be taken, but if they have nothing, the bank is screwed.

Yes. Making the creditor system take a hit isn't fun, but what are the alternatives? Forced debt inheritance? Lol.

 

[wildfire]

No the problem is thinking that's the point of credit cards. Credit cards don't mean spend more money than you have.

Technically they do mean that. The problem is believing that's the only message. You're supposed to make a calculated risk and assume you'll have the ability to pay off the debt later on so you can reap the benefits of getting something sooner.

 

[Tawney Bomb]

People are bad. I remember going out to lunch with my brother and he went through 3 cards before he found one that wasn't declined.

 

[DiipuSurotu]

I actually learned about credit score on NeoGAF, because the concept doesn't even exist in France.

 

[Marty Chinn]

Technically they do mean that. The problem is believing that's the only message. You're supposed to make a calculated risk and assume you'll have the ability to pay off the debt later on so you can reap the benefits of getting something sooner.

Nope, gotta disagree. You treat it the same way as you treat a debit card or a check. You only buy things that you have the money to cover for it. That money is as good as gone once you do. It does not mean spend more than you have. At no point am I ever buying something that my bank account cannot immediately pay off the credit card. People need to have that mentality, so no it doesn't mean spending more than you have.

 

[diffusionx]

Or the tax brackets thread lol. You'd think GAF would skew towards the smarter people just from how technically savvy people here are.

I'm not sure GAF skews smart... but even if it did, it's not like you are ever explicitly told this stuff. You have to go seek it out... which is insane, but that's how it is. Like others have said companies make billions off ignorance.

 

[andythinkpad]

I really appreciate that there are so many people who can't manage credit cards to save their lives in this country. Because of high percentage of people who get into credit debts, cc companies in the US liberally give out huge cc sign up bonus. And the rest of us who understand math can take advantage of them.

Just ask any gaffer from a different country, America credit cards have much better sign up bonus.

 

[I'm an expert]

I'm not sure GAF skews smart... but even if it did, it's not like you are ever explicitly told this stuff. You have to go seek it out... which is insane, but that's how it is. Like others have said companies make billions off ignorance.

And how are so many people here experts in framerates, or audio quality, or Japanese composers. They weren't explicitly told how to run dual gtx980s either. But they seek that dumb shit out no problem?

 

[icespide]

And how are so many people here experts in framerates, or audio quality, or Japanese composers. They weren't explicitly told how to run dual gtx980s either. But they seek that dumb shit out no problem?

because that stuff is arguably more interesting/fun than finance and credit cards. not to mention insecurity with one's curent financial situation and not wanting to come to terms with it

 

[andythinkpad]

And how are so many people here experts in framerates, or audio quality, or Japanese composers. They weren't explicitly told how to run dual gtx980s either. But they seek that dumb shit out no problem?

I was in here before the forum changed from Gaming-age to Neogaf, I never got the impression that GAF members were particularly tech savvy.

GAF has comparatively higher number of passionate fanboys of all kind, not smart people.

 

[I'm an expert]

because that stuff is arguably more interesting/fun than finance and credit cards. not to mention insecurity with one's curent financial situation and not wanting to come to terms with it

Right. So isn't it more insane that someone would watch a 10 min video about overclocking their cpu over reading 10 mins about how to not put themselves into a financial mess? One seems more important than the other. Is the excuse simply because most people are clowns and want to stick their fingers in their ears about adult stuff? Ok fine, but then again the system is not a trap or immoral, most people are just fuckwits that don't care.

 

[Magitex]

Right. So isn't it more insane that someone would watch a 10 min video about overclocking their cpu over reading 10 mins about how to not put themselves into a financial mess? One seems more important than the other. Is the excuse simply because most people are clowns and want to stick their fingers in their ears about adult stuff? Ok fine, but then again the system is not a trap or immoral, most people are just fuckwits that don't care.

Some people don't care? yeah maybe? there's a lot of different people out there. Some of them can't even read. Some just don't have any clue about interest but see everyone else has a credit card and because it's a status symbol of sorts they get one and immediately fall into it without realizing how much money they are losing; the bank isn't about to recognize and assist these people. Not all that much different from gambling in that respect.

Do you look up life saving medical procedures? Do most people? There's a ton of shit you could be researching at this very moment to benefit yourself instead of wasting your time overclocking pointless shit, but it's just how people spend their time.
Even if they did research it, there's no guarantee they would understand or remember it.

 

[Marty Chinn]

Some people don't care? yeah maybe? there's a lot of different people out there. Some of them can't even read. Some just don't have any clue about interest but see everyone else has a credit card and because it's a status symbol of sorts they get one and immediately fall into it without realizing how much money they are losing; the bank isn't about to recognize and assist these people. Not all that much different from gambling in that respect.

Do you look up life saving medical procedures? Do most people? There's a ton of shit you could be researching at this very moment to benefit yourself instead of wasting your time overclocking pointless shit, but it's just how people spend their time.
Even if they did research it, there's no guarantee they would understand or remember it.

I don't research stuff out of the blue, but before I get something that's important or that will impact my life, you're damn right I research it. Any major purchase, I'll research. Any important medical decision, I'll get informed. The decision to get a credit card is no different since it's a major financial matter.

 

[Transistor]

Economics in school should teach you this shit.

 

[Magitex]

I don't research stuff out of the blue, but before I get something that's important or that will impact my life, you're damn right I research it. Any major purchase, I'll research. Any important medical decision, I'll get informed. The decision to get a credit card is no different since it's a major financial matter.

Welcome to the intellectually elite!
Now if we could just get the rest of the population to do it.

Most people don't think of credit cards as 'major financial matters' I don't think; even if they did, most don't pay it nearly enough heed.

 

[diffusionx]

And how are so many people here experts in framerates, or audio quality, or Japanese composers. They weren't explicitly told how to run dual gtx980s either. But they seek that dumb shit out no problem?

Right, they actually looked for that info. If you want info on tax brackets or saving or getting out of debt it's all there. There's thousands of books, blogs, videos, millions of articles, calculators, etc. But if you don't care you don't care.

I do think that kids in high school should have to take a course on personal finance, but even if there was one, a lot of them would give about as many fucks as they do every other course.

edit: and well, there's a lot of bad info out there too. Look at the scummy gold companies that advertise on Glenn Beck or other right wing sites. It's a rough world out there.

 

[FUBAR McDangles]

So what are the consensus top of the line credit cards? Or at least, what do most of gaf use?

EDIT: For clarification, I pay off mine every month and never have any issues with it. But my current card through U.S. Bank has a bad rewards system that leaves a lot to be desired.

 

[Skux]

Thankfully my parents know their shit when it comes to money and passed most of it to me.

- Never buy something you can't afford. Exceptions for houses.

- Always pay off your credit card in full every month. It's a loan just like any other loan, except this one has a punishing interest rate.

- Put a bare minimum of 10% of your income into your savings.

- Put your money into term deposits when interest rates are favourable.

 

[Marty Chinn]

Welcome to the intellectually elite!
Now if we could just get the rest of the population to do it.

Most people don't think of credit cards as 'major financial matters' I don't think; even if they did, most don't pay it nearly enough heed.

Given the number of stories about credit card debt, people abusing credit cards and so forth, I have to think it's their own damn fault for not looking into it beforehand. It's not like this is some secret thing that happens to people that nobody ever hears about. Sometimes people need to just accept personal responsibility rather than trying to blame the system for being out to get them and other people.

 

[dodgeme]

It amazes me how many people, my parents included don't understand credit cards.

My take on them has been to open them and take advantage of the 0% apr offers when they are available for bigger purchases when I don't want to unload all the money at once, but still have it available should I need to pay it off suddenly.

Then after that use the best cards for their rewards. I pay for pretty much everything with my credit cards. Can't say no to free money. Currently I am rotating 6 cards based on rewards, have a card for bills thanks to 2% cash back on everything (Citi Double-Cash), my card for groceries and usually gas 3%/2% cash back respectively(Amex Blue Cash Everyday), rotating categories of 5% (Discover It), Amazon Purchases (Amazon Chase Card), fallback high limit 1.5% card (Capital One Quicksilver), and I plan on adding a good travel card soon, something like the Chase Sapphire.

Never do I run into trouble as I usually pay these off as soon as the bills post, and I reap all the rewards in doing so, usually am able to redeem between $250-400 in free gift cards each year.

 

[TarpitCarnivore]

It amazes me how many people, my parents included don't understand credit cards.

My take on them has been to open them and take advantage of the 0% apr offers when they are available for bigger purchases when I don't want to unload all the money at once, but still have it available should I need to pay it off suddenly.

Then after that use the best cards for their rewards. I pay for pretty much everything with my credit cards. Can't say no to free money. Currently I am rotating 6 cards based on rewards, have a card for bills thanks to 2% cash back on everything (Citi Double-Cash), my card for groceries and usually gas 3%/2% cash back respectively(Amex Blue Cash Everyday), rotating categories of 5% (Discover It), Amazon Purchases (Amazon Chase Card), fallback high limit 1.5% card (Capital One Quicksilver), and I plan on adding a good travel card soon, something like the Chase Sapphire.

Never do I run into trouble as I usually pay these off as soon as the bills post, and I reap all the rewards in doing so, usually am able to redeem between $250-400 in free gift cards each year.

The concept of rotating cards based on rewards is just not worth the effort for me. Especially when you consider the sheer number of cards you (specifically in this sense) are rotating. That would drive me absolutely nuts.

I just my Amazon Visa on Amazon and DoubleCash on everything else. I put one recurring transaction on my other three cards so they stay active. I'd love to close two of them because they're student cards, but they're also my longest credit history.

 

[dodgeme]

The concept of rotating cards based on rewards is just not worth the effort for me. Especially when you consider the sheer number of cards you (specifically in this sense) are rotating. That would drive me absolutely nuts.

I just my Amazon Visa on Amazon and DoubleCash on everything else. I put one recurring transaction on my other three cards so they stay active. I'd love to close two of them because they're student cards, but they're also my longest credit history.

Believe it or not it's become second nature to me. Don't really even think about it, I know which card is for what and it takes me like 5 minutes to check all my accounts quick.

I am in the same boat with a student card, has the worst rewards of any of my cards but I feel obligated to keep it as it's my longest credit history as well. Was looking to consolidate it into my Quicksilver Card to raise my credit limit there but it kills the credit history. I may call Capital One and see if they could upgrade it to a different card like the Cap One Venture, but that is where I lose interest in making an effort as that requires a phone call haha.

 

[Mr_Moogle]

"Obvious" is a relative term. The number of people, even in this thread, who have failed to understand credit until it was too late proves that.

Basic finance really should be taught in school, and I disagree with earlier posters who said it wouldn't stick--this is the one subject that kids realize is directly applicable to their lives, and actually pay attention to. My dad taught in a charter school for a while and found that even children struggling with math were interested in personal finance, credit, etc., because it was relatable. It also clued them into the fact that basic algebra is a necessity for real life, which a lot of teachers struggle to convey.

Finance is taught in schools in Australia. I don't think it's a mandatory class like Math or English but at least the option is there.

 

[Kenstar]

I meant to say purchase rate, which is what you get charged if you have a balance and don't pay in time. For example, here it's 19.99%. My siblings have not paid in time before and they were charged 19.99% of the the balance as interest. But yeah, you are right with the interest rate, just some places will say if it's perannum or monthly.

That's what I'm talking about, the 19% Purchase Interest Rate is annual, and is divided by 12 to be applied monthly to the balance owed

They might have had other fees owed that made their total appear higher, but no credit card anywhere on earth is being charged 20% per Month, that's an APR of over 890% ,into those dreaded payday loan territory($1000 owed with no payments made on those terms would balloon to $8916 after 12 cycles of monthly 20% interest, after another year over EIGHTY THOUSAND (80,000) DOLLARS(!!)

The min payment (only paying off interest) on $8916 at 20% per MONTH is $1783.
People stay afloat on large credit card debts because the min payments on 9K of debt at 20% APR is actually $148 a month (20% divided by 12 months, 1.666% monthly), not over $1700 (20% per month), or else no one could AFFORD to have moderate amounts of credit card debt (which clearly happens in the US)

 

[youngplaya21]

So what are the consensus top of the line credit cards? Or at least, what do most of gaf use?

EDIT: For clarification, I pay off mine every month and never have any issues with it. But my current card through U.S. Bank has a bad rewards system that leaves a lot to be desired.

It amazes me how many people, my parents included don't understand credit cards.

My take on them has been to open them and take advantage of the 0% apr offers when they are available for bigger purchases when I don't want to unload all the money at once, but still have it available should I need to pay it off suddenly.

Then after that use the best cards for their rewards. I pay for pretty much everything with my credit cards. Can't say no to free money. Currently I am rotating 6 cards based on rewards, have a card for bills thanks to 2% cash back on everything (Citi Double-Cash), my card for groceries and usually gas 3%/2% cash back respectively(Amex Blue Cash Everyday), rotating categories of 5% (Discover It), Amazon Purchases (Amazon Chase Card), fallback high limit 1.5% card (Capital One Quicksilver), and I plan on adding a good travel card soon, something like the Chase Sapphire.

Never do I run into trouble as I usually pay these off as soon as the bills post, and I reap all the rewards in doing so, usually am able to redeem between $250-400 in free gift cards each year.

Pretty much all of the cards dodgeme mentioned, along with I think the Chase Freedom card seem to be the most popular. I can at least vouch for the Amazon Chase/Quicksilver/AMEX Blue Cards being amazing, and I'm seriously considering the Citi card too

 

[DarkHeartedKill]

That's what I'm talking about, the 19% Purchase Interest Rate is annual, and is divided by 12 to be applied monthly to the balance owed

They might have had other fees owed that made their total appear higher, but no credit card anywhere on earth is being charged 20% per Month, that's an APR of over 890% ,into those dreaded payday loan territory($1000 owed with no payments made on those terms would balloon to $8916 after 12 cycles of monthly 20% interest, after another year over EIGHTY THOUSAND (80,000) DOLLARS(!!)

The min payment (only paying off interest) on $8916 at 20% per MONTH is $1783.
People stay afloat on large credit card debts because the min payments on 9K of debt at 20% APR is actually $148 a month (20% divided by 12 months, 1.666% monthly), not over $1700 (20% per month), or else no one could AFFORD to have moderate amounts of credit card debt (which clearly happens in the US)

Yeah you're right. They had a bunch of other fees. I'm also pretty stupid to not realize that nearly 25% monthly interest would be beyond crippling. The saddest part is I studied Accounting...this is what happens when you're out of school for a long time and don't review your shit D;.

I guess the fact that I never paid interest since I've had a credit card was also to blame.

 

[I'm an expert]

Since I'm in multiple credit posts I figured I'd cross post this:

Then educate me on this so called free money. If you are talking back stuff like 1% cash reward on your grocery and online purchases then none of the banks in my country offer such a scheme. The best offer I see is interest free for 3 months. I also would get charged €60 every 3 months if I used the card or not.

Sorry had to go out and get the Yokai medallium for my kid. So first of all, let's just get it out of the way that most threads and comments on gaf are related to the American credit system as the majority of posters on this forum are American and the American credit system is the most robust. If the reward heavy credit system doesn't apply to you, and credit score is not something heavily relied on in your country by financial institutions, then this conversation isn't really aimed at you. Let's continue assuming you do have the opportunity to take advantage of a good credit system.

How credit works for most normal people:

You buy something that you could afford to pay for this moment, but choose to defer the payment. Let's not get into the fancy financial theory reasons behind this. Just understand - you want to buy a $400 Playstation 4, you have $400 right now and paying for it would not put you in any financial danger, you choose to instead pay with credit knowing that you are 'borrowing' the money but in reality you are not, you are taking advantage of the deferred payment for some type of reward.

Just so everyone is on the same page, if you buy something with credit, you get a statement every month for your balance. If you do not pay that balance (usually within a month) you get charged interest on the balance. If you pay the full balance every month, there is no interest, no fee, absolutely zero financial loss. By paying off your balance every month, you are NOT borrowing money you don't have, you are deferring payment, By NOT paying off your balance every month, you are borrowing money you may or may not have.

Even using credit without any reward system is beneficial because you get yourself a month extra time for every purchase to pay it off. To some this is inconsequential, to some this is an easy 0% one month 'loan' with no loss.

Here are basic reward types you can take advantage of that are simply not extended one month deferral, warranties, vip bonuses, etc:
1. Interest free for a period of time
2. Percentage back on your purchase in cash or account balance
3. Accrual of points, mileage, or some other redeemable currency

Let's apply basic debit/credit accounting to each situation and analyze the benefits.

We buy our $400 PS4 with credit.

Dr. Asset - PS4 $400
Cr. Payable Liability $400

We have received a $400 PS4 immediately but know we have to pay $400 some time in the future.

If we are on a 0% interest campaign, what that means is we can pay the minimum amount every month and NOT get charged interest while the campaign is in effect (ie we do NOT have to pay the balance in full like normal). Let's say we have 10 months of 0% interest and our minimum payment is $40. If I pay $40 every month, I will not be charged any penalty or interest. Therefore, I can pay for this PS4 over 10 months using the following entry every month.

Dr. Payable Liability $40
Cr. Cash $40

At the 10th month the liability will be 0 and the total amount I have paid in cash is $400, the exact price of the PS4. I have not paid more than the price of the PS4. So what was the benefit? That I didn't have to use $400 NOW, but got to spread it over a period of time. Forget any technical financial terms, just use common sense and say the first month I should have been out $400 but was only out $40, therefore I had $360 more than I would have, and so on and so forth for each month. Yes, this requires you to budget properly and make sure you do not spend yourself to 0 (technically below $40, the minimum payment) but this is just common sense. You have taken a 0% 'loan' with absolute zero risk because you're a responsible, smart person who knows they need to have cash on hand to pay off the PS4.

Second scenario, we get a percentage back. So we buy the PS4, but our card has a 5% cash back feature. So again, here's our original entry:

Dr. Asset - PS4 $400
Cr. Payable Liability $400

Remember, this is not zero interest so we are expecting to pay this $400 at the end of the next statement. So next month we pay the $400.

Dr. Payable Liability $400
Cr. Cash. $400

However, we have a 5% reward. For simplicity's sake let's say it's just an actual check for the money back. You get that check in the mail for $20.

Dr. Cash $20
Cr. Asset Playstation $20

What we did here is get $20 cash and reduce the value of our PS4 to $380 because that's what we paid for it. Don't worry about the accounting, the point is because you used credit instead of cash, the PS4 was cheaper. That's just common sense better. right?

Third situation is getting some kind of points. Same scenario, remember we need to pay the $400, which we have readily available, after the statement.

Dr. Asset - PS4 $400
Cr. Payable Liability $400

But now we get some kind of point, let's say 20,000 smartgaf points which is $25 value. I think you get the point.

All 3 of these scenarios work in our favor over simply paying cash and they only require the bare minimum of common sense.

How credit works for poor people:

You buy something you can't afford to pay for this moment (or can but it essentially puts you in dire financial danger) and so you are actually borrowing the money, knowing you will pay interest on it, but trying to pay as little as possible. Just understand - you want to buy a $400 Playstation 4, you do not have $400 right now and know that you are borrowing the money, you pay with credit and realize the price you pay eventually for the PS4 will be more than $400, but hopefully within reason that it makes the purchase worth it to you.

Dr. Asset - PS4 $400
Cr. Payable Liability $400

Same beginning, but we can only pay $100 the first month. We're charged interest, let's pretend $10 for simplicity's sake regardless of balance (not real life). So our balance at the next month is $310 - $10 of interest and $300 left on the PS4.

Dr. Interest Expense $10
Dr. Payable Liability $100
Cr. Cash $100
Cr. Interest Payable. $10

Continue on the same pattern for the next three months and the total you have paid is $440 for this PS4. You borrowed the money and paid overall 10% interest on it, but you got to use the PS4 for 4 months before you could have saved and afforded it outright. To some people, this is something they can swallow, especially when it's not a PS4 but food or bills.

These are basic examples, but do you understand how using credit responsibly, even in the poor person's situation, can be beneficial?

Credit is not meant to be used as charge the max limit of the card and only pay the minimum payment forever. That is called true debt. That is being dumb. That's not what credit is for.

 

[linkandzelda]

Finance is taught in schools in Australia. I don't think it's a mandatory class like Math or English but at least the option is there.

Has that worked? My initial assumption would be that it would not work as the people who bother to take the class would be the same people who would look it up themselves.