I personally try to pay all my credit card balances before they accrue interest. Aside from a slightly greater penchant for travel and a nicer apartment, the rest of my lifestyle hasn’t changed all that much since I graduated from university almost ten years ago.
Not to gloat, but I’m proud to say I have never paid a fee, interest expense, or other charge on a credit card. Call me old fashion, but I live within my means and only buy what I can afford.
Most of my life I’ve always paid in full. The only times I’ve had significant balances of any kind have been the result of unemployment plus recession.
I’ve carried decent amounts of debt at various points, but have gotten to do a hell of a lot of impromptu globe stomping over the past three years. Totally worth it IMHO. Different prioritiesi I guess.
I guess we all need something to be proud of! YOLO
Basically, the rules for debt I use are:
It’s ok to use debt for:
resolving timing issues betwen cash inflows and outflows, provided the interest rate is not excessive. Travel can fit here (and home mortgages), provided future net cash flow estimates are realistic.
financing productive activities with expected returns higher than the interest rate (and, ideally, that difference sufficient to justify the risk of not working out, though I didn’t think about this aspect in my pre-finance days).
If it doesn’t fit one of these two conditions, the only remaining reason for taking on debt is:
- emergencies, when there is no other source of funding and effectively no choice (e.g. medical emergencies, unemployment (in combination with cutting lifestyle expenses), etc.).
The underlying principle behind all of this is “Never use debt to finance consumption, unless you already know how you are going to pay for it. Or it’s an emergency and there’s no other option.”
What works for the country also seems to work for the individual.
Yeah, but the country also has seignorage rights (well, not if you’re a Euro-country), which changes the feasible set vs. the individual. The country’s ability to tax is not the same as the individual’s ability to demand more income (though taxation has both positive and negative consequences on revenue).
Countries also have much longer time horizons (they don’t grow old at the same pace as individuals), and they have distributional considerations that individuals don’t have (though families might).
I’ve got about $1k left over from my trip to Europe.
I have enough cash to pay it off in my savings, but it is a 0% interest rate so I am just making payments on my student loans until the interest rate kicks up later in 2013.
I carry 0. I actually pay off my credit cards biweekly (more with AMEX, because it allows it). I use rewards cards for 95% of my expenses, which means they have higher than average APRs. I earn between $2K-4K annually based off of the cash back on business expenses that are reimbursed and personal expenses I would incur anyway.
Why not use the money you used to pay the interest/debt and save before going on the trip?
- No way I’m going to let credit card companies make a 15% return on me…
You realize that as long as you pay your bill 100% each month, there is no finance charge. So you don’t have to pay your bill before it arrives. What is your rationale for paying bi-weekly and even more frequently than bi-weekly?
Most of my trips tend to escalate from a happy hour conversation to a cab ride to the airport pretty quickly.
So, I’m assuming we’re talking about credit card debt that you carry forward and pay interest on, right? Not the balance that you pay off right away as it hits your statement. I’m not really sure why you would consistently carry any of this debt through credit cards, unless your actual net worth is below zero. Hopefully, most people’s lives are not in a constant liquidity crisis, and the 15% interest rates on credit card debt seem to eliminate the argument that there is a more productive use of the capital elsewhere.
I always pay off my credit card every month. I can’t imagine ever being in a position where I would ever be paying interest on a credit card (unless I was broke and jobless I guess). When I’ve had short term cash flow problems I’ve just gotten short term loans at much lower rates from the bank that I’ve paid off pretty quickly.
The only loan I’ve ever really has is my mortgage. I’ve never had a car loan, always paid my cars cash, it’s probably the reason I’ve never owned a really nice car.
The thing I’d like to know more about is what more (if anything) can be done to extract value from using credit cards. I usually pay for everything on credit card, and then pay for it at the end of the month, but that’s about the only thing I do. I recently looked into rewards cards but the benefits seemed pretty small (spend $40K, get a $20 toy kinda thing). Anybody do anything interesting to extract extra value from your cards?
i’m maxed out on my cards cause it’s a quick and easy way to fund my hot trades. sure, carrying high leverage kind of pushes up your APR, but it’s still way below the guaranteed minimum return from my awesome investment decisions.
zero credit card debt…i only use credit card to avoid paying cash…