> Overall, nearly half (47 percent) of credit cardholders have revolving debt, meaning they don’t pay off their balance in full.
Does this mean 53% of those do pay off the balance in full each month? It'd be interesting to know what amount of that $1T is actually at 0% interest either due to introductory periods or being paid off in grace period. Depending on the answer to that, it may not be as eye popping because it shows the credit card is just being used as a more convenient form of payment, not as a debt mechanism.
Anecdotal, but I use 5 credit cards as a convenient form of payment, not as a debt mechanism. I use credit cards primarily for their cash back rewards. For every transaction I make, I try to find a deal in one of the credit cards I already have.
I wonder if something like a 0% APR Macbook purchase would appear against this statistic. I pay off my credit card every month but periodically lean on 0% situations out of convenience.
With the rise of "Finance your small purchase!" on most eCommerce platforms it must really muddy the data.
I wonder how much of this is just due to education. I know several people who make good money, but carry over absurd amounts on their cards each month, losing hundreds of dollars.
These same people have tens of thousands, probably more, in their savings. But for some reason they can't bring themselves to pulling a chunk of their savings out and zero-ing the debt.
I think they were taught that savings should only go up, but don't realize they're being totally fleeced by 20% interest rates.
Or another pattern, which I presume CC companies bank on : People forget to pay in the grace window and hence get charged _some_ interest, and often get into a pattern where they pay off the wrong debts first etc.
So they're earning upto 4.5% on their savings, and then paying out like 20-25% on the debt.
The article makes a mere side note of the fact they also count revolving debt, i.e. what happens if you pay for groceries on a credit card and then pay off the amount in full every month.
Nominal numbers aren't very meaningful. This number is affected by inflation just like prices. Household debt relative to GDP has been dropping pretty consistently since the financial crisis:
I think GDP may not be the best representation to how well people are doing, but debt as a % of personal income seems to tell the same story: https://fred.stlouisfed.org/series/TDSP
Its a bit surprising given observational evidence. right now people seem to be spending at any cost and have run dry. now we are to the point every other weekend the bars/pubs are empty because people already spent their money, and the next week its packed because they got paid.
[Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks]/ ([Total Households] * [Real Median Household Income in the United States]) https://fred.stlouisfed.org/graph/?g=17Hsf
(units adjusted)
Consumer loans jumped after financial crisis and peaked 2018.
Wow that's surprising given that new cars and houses are so much more pricey these days. I guess the average person is earning a lot more than in 2008.
When you pay with credit, their is typically a slight delay in when your loss is realized (e g. whenever your auto pay triggers).
It seems like this delay has huge effects some tangible some not. Dave Ramsey's preaching on only paying with cash certainly covers some of the psychological effects like:
- this is real money leaving my possession
- I can see how much I have left to spend immediately
I'm in my 30's and just got my first credit card (big mistake, don't do this). I learned personal finance from video games- if you don't have enough gold then you can't buy it!
I know several people in California that were essentially ruined financially, partly due to drastic cost of living increases, and partly due to long term credit card debt. That money is piled up in the financial system.
this credit card debt/spending = bad dogma that has become so common online, popularized by personal finance gurus, is so annoying and wrong.
credit cards can be used safely and responsibly, like any other financial tool
credit card interest is a lot but still less than payday loans
Best of all, credit cards offer superior buyer protection compared to other forms of payment. this alone is reason to use them. Also, lots of perks and other features. Debit cards are the big scam.
Many of the most famous personal finance gurus are basically teaching "personal finance for dummies", and so they take a very basic approach. They focus on getting people out of financial trouble, and in that context 'debt=bad' is a pretty handy rule of thumb. If they gave the general advice to chase that sweet 3% cash back, they could easily do more harm than good to their audience at large, since it might lead a large number of people (remember their target audience!) to take on debt that they end up carrying for some time. By sticking to the over-simplified "debt=bad" messaging, they give up some easy (small) gains to avoid some potential (and relatively big) costs.
The general rule of thumb is don't pay for consumables with debt. The longer you will use something, the more of an asset it is, and the more you can justify paying for it over its useful lifetime. You don't want to still be paying for today's lunch two months (or two years!) from now.
Why is paying with credit card the default in the US (at least that the impression I've got when visiting as a tourist) while here in Europe debit cards are the norm?
Credit cards often come with some %age cashback for certain kinds of purchases, and my understanding is that since the bank is technically the one paying, credit cards give you greater ability to dispute transactions.
Since while a bad business might be able to blow you off as just a random nobody, with a credit card you could drag the bank into the matter, which is a lot harder for a business to screw over.
Plenty of people in Europe have credit cards [1] so now I'm curious. Why do so many have them?
In the US where most people who are not paying cash do indeed use credit cards it is pretty normal to also have a debit card, but that is because the debit card is what you use to get cash at an ATM and so it makes sense to have one even if you never use it for payments.
I can make 6% off my groceries, 3% off gas, 3% off online shopping, and get all kinds of extra device protections warranties like theft and defects. Next I auto pay all my bills on my Delta Amex to get skymiles and $200 for flights a year plus free luggage. My gas company also has a deal with Delta so I get double points.
My wife expenses all her sales based expenses on her card at gets 2% or up to 3% for Restaurants.
This month I am cashing in about $1000 cash back I’ve accumulated in the past ~9 months. Putting it towards a new MacBook Pro.
And it's only going to get worse as businesses shift away from taking anything other than the promises of third party rent seeking corps to pay for items. In the USA this is supposed to be illegal, ie, places have to accept cash for debts. But the solution many businesses have already found is to simply not take orders unless you swipe your card first. Pretty soon you won't be able to buy food or other neccessities without using a credit card.
> Pretty soon you won't be able to buy food or other neccessities without using a credit card.
In the US, this is FUD. There may be isolated instances of this happening which makes everyone spread doomsday news, but I really don't see this happening at every single place in the US within the next 20+ years, which falls out of your 'pretty soon' estimation.
Not quite. "Selling you something" and "satisfying a debt owed" are not the same thing. A sales transaction is not the same thing as a debt.
It is perfectly legal for a counterparty to decline to enter into a sales transaction with you because they don't like your proposed payment terms. They are not required to accept cash (or anything else that they don't like.) That is not satisfaction of a debt owed; no debt has been created, because they refuse to give you anything in the first place.
The "legal tender for all debts" part means that _if you already owe someone money_ for some reason, and you offer them cash, they cannot refuse the cash and then pursue legal action against you for not paying the debt. The court must rule that your offer of cash is sufficient to satisfy the debt.
[+] [-] maerF0x0|2 years ago|reply
Does this mean 53% of those do pay off the balance in full each month? It'd be interesting to know what amount of that $1T is actually at 0% interest either due to introductory periods or being paid off in grace period. Depending on the answer to that, it may not be as eye popping because it shows the credit card is just being used as a more convenient form of payment, not as a debt mechanism.
[+] [-] nine_zeros|2 years ago|reply
[+] [-] tmpz22|2 years ago|reply
With the rise of "Finance your small purchase!" on most eCommerce platforms it must really muddy the data.
[+] [-] algoatecorn|2 years ago|reply
These same people have tens of thousands, probably more, in their savings. But for some reason they can't bring themselves to pulling a chunk of their savings out and zero-ing the debt.
I think they were taught that savings should only go up, but don't realize they're being totally fleeced by 20% interest rates.
[+] [-] maerF0x0|2 years ago|reply
So they're earning upto 4.5% on their savings, and then paying out like 20-25% on the debt.
[+] [-] koala_man|2 years ago|reply
[+] [-] HumblyTossed|2 years ago|reply
It would be interesting to have this data broken down more.
[+] [-] tootie|2 years ago|reply
https://fred.stlouisfed.org/graph/?g=17HqN
[+] [-] autokad|2 years ago|reply
Its a bit surprising given observational evidence. right now people seem to be spending at any cost and have run dry. now we are to the point every other weekend the bars/pubs are empty because people already spent their money, and the next week its packed because they got paid.
[+] [-] nabla9|2 years ago|reply
Here are two even better charts relevant to the subject:
[Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks]/GDP https://fred.stlouisfed.org/graph/?g=17Hsu
[Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks]/ ([Total Households] * [Real Median Household Income in the United States]) https://fred.stlouisfed.org/graph/?g=17Hsf (units adjusted)
Consumer loans jumped after financial crisis and peaked 2018.
[+] [-] lockhouse|2 years ago|reply
[+] [-] missedthecue|2 years ago|reply
[+] [-] theseadroid|2 years ago|reply
[+] [-] maerF0x0|2 years ago|reply
[+] [-] thatcherthorn|2 years ago|reply
It seems like this delay has huge effects some tangible some not. Dave Ramsey's preaching on only paying with cash certainly covers some of the psychological effects like:
- this is real money leaving my possession
- I can see how much I have left to spend immediately
[+] [-] 2OEH8eoCRo0|2 years ago|reply
[+] [-] mistrial9|2 years ago|reply
[+] [-] paulpauper|2 years ago|reply
credit cards can be used safely and responsibly, like any other financial tool
credit card interest is a lot but still less than payday loans
Best of all, credit cards offer superior buyer protection compared to other forms of payment. this alone is reason to use them. Also, lots of perks and other features. Debit cards are the big scam.
[+] [-] marcusverus|2 years ago|reply
[+] [-] CapsAdmin|2 years ago|reply
So then the question to me is; should we let people do what they want to do and/or regulate the service?
Gambling is a good example of a heavy regulated service to prevent missuse, but of course not as severe as bad credit card spending.
I could say that gambling is harmless if you just limit you spending. But IMO this misses the bigger context.
I personally find credit cards very useful and never had my debt carried over. But my economy isn't exactly tight either.
[+] [-] mecha_ghidorah|2 years ago|reply
What.... how? I get a debit card for free and use it to pay for things in the same way I would cash. How exactly am I getting scammed?
[+] [-] SoftTalker|2 years ago|reply
[+] [-] rickette|2 years ago|reply
[+] [-] dotnet00|2 years ago|reply
Since while a bad business might be able to blow you off as just a random nobody, with a credit card you could drag the bank into the matter, which is a lot harder for a business to screw over.
[+] [-] tzs|2 years ago|reply
In the US where most people who are not paying cash do indeed use credit cards it is pretty normal to also have a debit card, but that is because the debit card is what you use to get cash at an ATM and so it makes sense to have one even if you never use it for payments.
[1] https://www.theglobaleconomy.com/rankings/people_with_credit...
[+] [-] wil421|2 years ago|reply
My wife expenses all her sales based expenses on her card at gets 2% or up to 3% for Restaurants.
This month I am cashing in about $1000 cash back I’ve accumulated in the past ~9 months. Putting it towards a new MacBook Pro.
[+] [-] SoftTalker|2 years ago|reply
[+] [-] superkuh|2 years ago|reply
[+] [-] latchkey|2 years ago|reply
In the US, this is FUD. There may be isolated instances of this happening which makes everyone spread doomsday news, but I really don't see this happening at every single place in the US within the next 20+ years, which falls out of your 'pretty soon' estimation.
[+] [-] pjlegato|2 years ago|reply
It is perfectly legal for a counterparty to decline to enter into a sales transaction with you because they don't like your proposed payment terms. They are not required to accept cash (or anything else that they don't like.) That is not satisfaction of a debt owed; no debt has been created, because they refuse to give you anything in the first place.
The "legal tender for all debts" part means that _if you already owe someone money_ for some reason, and you offer them cash, they cannot refuse the cash and then pursue legal action against you for not paying the debt. The court must rule that your offer of cash is sufficient to satisfy the debt.
[+] [-] no_wizard|2 years ago|reply
[+] [-] sdfghswe|2 years ago|reply
[+] [-] HumblyTossed|2 years ago|reply