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theJ


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PostPosted: Sat Sep 29, 2012 6:30 pm    Post subject: Reply with quote

incognito_man wrote:
Never using a credit card seems pretty stupid to me.

It's free money - the 1-2% return.


There are debit cards that give cash back. Just saying.

And even then, the point is that a majority of americans carry a balance on their credit cards. Which means you've forfeited the 1-2%, plus some, on interest.

EDIT: Paged:

Matts4313 wrote:
Your average tax free municipal bond over that time was roughly ~5%.. tax free. For most Americans, that is the equivalent of a 6.7% return on a taxable investment.

At that same time, your interest payments on your house would have been tax deductible.


Same idea can apply for purchases that are low/zero interest. The taxes become less important at that point though.


Maybe if people should spend more time understanding investments or seeking out a professional that can help them.


So why not invest the money ahead of time and pay straight cash? I'd really like to see the magic math behind that, because i'm sure that will beat the payments every time.
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incognito_man


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PostPosted: Sat Sep 29, 2012 7:03 pm    Post subject: Reply with quote

theJ wrote:
[

There are debit cards that give cash back. Just saying.

And even then, the point is that a majority of americans carry a balance on their credit cards. Which means you've forfeited the 1-2%, plus some, on interest.


well that's just not true...

http://www.npr.org/2012/06/12/154868285/credit-card-debt-cut-the-reason-may-surprise-you
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theJ


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PostPosted: Sat Sep 29, 2012 8:01 pm    Post subject: Reply with quote

incognito_man wrote:
theJ wrote:
[

There are debit cards that give cash back. Just saying.

And even then, the point is that a majority of americans carry a balance on their credit cards. Which means you've forfeited the 1-2%, plus some, on interest.


well that's just not true...

http://www.npr.org/2012/06/12/154868285/credit-card-debt-cut-the-reason-may-surprise-you


Only 40% then? My bad.

That still doesn't seem good... Confused
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BornToFly


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PostPosted: Sat Sep 29, 2012 8:23 pm    Post subject: Reply with quote

theJ wrote:
eagles101 wrote:
im not a fan personally. half the stuff he says is common sense to me and the other half seems to only work if you make a decent wage. since me and my wife are at the lower end, saving up to buy a house instead of getting a loan is just stupid.

he helps people, he helped my sister-in-law, and would help some of my friends....but since im not dumb with money and love to be frugal...im fine.

He's ok with 15 year, fixed rate mortgages. He understands that most people can't save up 100 grand.

Matts4313 wrote:
But here is the gist - He stresses debt free so much that he misses the boat on the opportunity cost of investing vs paying off certain debt.

For example - paying off a house that could be financed at a sub-4% interest rate is absolutely a bad idea at this time.. especially when you factor in tax breaks and accessibility of the funds.


Depending on the person, this can be a good or bad idea. Most of the US population hasn't a clue how to invest properly. Give them an extra $1000/month and they just blow it. So his idea is that they should have this goal of paying off the house, which gets them a guaranteed 4% back on their money in the long run.

I've actually heard him say on his radio program and other places that he doesn't mind people investing after they pay off every debt but the house. I.e., once the student loans are gone and you're saving enough for retirement and kids college, go ahead and throw some money in mutual funds, real estate, whatever your fancy is. Just don't forget about the house.

Remember, Dave argues that paying off debt is largely emotional. You won't find him talking interest rates very much, because he's more concerned with people just focusing on paying the stupid things off. So if you have a $300 debt at 4% and a $4000 debt at 8%, he'd tell you to pay the $300 first and get it out of the way so you can bear down on the $4000. A house is a different animal because the loans are so lengthy and so large, that most people can't bear down for 8 years with extreme focus and do nothing else.

Personally, i plan on doing a mix of both. I'd like to dedicate a mix of my money to mutual funds and my house. One has a guaranteed return, and one is more risky. That way i know i'm making 5-7% on my money most likely and am outpacing inflation.


The snowball effect. Getting smaller ones paid off and out of the way is a sense of accomplishment and makes you feel like yeah, I CAN do this, instead of paying down the one with the larger interest rate.

Also, Dave says that when you use plastic, there is a emotional disconnect. You WILL spend more cause you won't have the pain of handing over the green stuff, you just swipe and done. There is more pain involved when you are handing over bills. That is way he likes the envelope system. From his site:
Quote:
When you pay cash, you can "feel" the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash. This is money you could have saved!
I can see how this could be true. I haven't adapted to it completely yet, cause my debit card is just so convenient.


I really really want to take his financial peace university class. There just aren't many around here. I'd have to travel 45-60 minutes to get to it. I might just do it anyway though cause I have heard nothing but absolute wonderful things about it.
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BornToFly


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PostPosted: Sat Sep 29, 2012 8:30 pm    Post subject: Reply with quote

theJ wrote:
Matts4313 wrote:
Your average tax free municipal bond over that time was roughly ~5%.. tax free. For most Americans, that is the equivalent of a 6.7% return on a taxable investment.

At that same time, your interest payments on your house would have been tax deductible.


Same idea can apply for purchases that are low/zero interest. The taxes become less important at that point though.


Maybe if people should spend more time understanding investments or seeking out a professional that can help them.


So why not invest the money ahead of time and pay straight cash? I'd really like to see the magic math behind that, because i'm sure that will beat the payments every time.


Not only that, but debt=risk. Always. Nobody ever thinks that when they buy a computer from best buy on a credit card with 0% int for a year that they might lose their job and have a hard time finding another. Thus can't repay the comp ( or whatever you bought with a 0% credit card )
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incognito_man


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PostPosted: Sat Sep 29, 2012 8:36 pm    Post subject: Reply with quote

theJ wrote:


Only 40% then? My bad.

That still doesn't seem good... Confused


Well, it shows they are good for the majority of Americans...
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theJ


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PostPosted: Sat Sep 29, 2012 8:55 pm    Post subject: Reply with quote

incognito_man wrote:
theJ wrote:


Only 40% then? My bad.

That still doesn't seem good... Confused


Well, it shows they are good for the majority of Americans...


I don't know about good, but for 60% of Americans they work out. The other 40% will battle debt and credit problems for a sizable chunk of their lives.

And back to my original point - there exist debit cards with cash back policies. So what would be the advantage of a credit card then?
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theJ


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PostPosted: Sat Sep 29, 2012 8:59 pm    Post subject: Reply with quote

BornToFly wrote:
Also, Dave says that when you use plastic, there is a emotional disconnect. You WILL spend more cause you won't have the pain of handing over the green stuff, you just swipe and done. There is more pain involved when you are handing over bills. That is way he likes the envelope system. From his site:
Quote:
When you pay cash, you can "feel" the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash. This is money you could have saved!
I can see how this could be true. I haven't adapted to it completely yet, cause my debit card is just so convenient.

My wife and i recently started doing this. I can profess that this is true. And not only that, but if you take out $100 from the bank at the beginning of the month and say "this is what i get for everyday, general use (not counting food)". If you run out, you're out. There's no cheating with this method like there is with credit.

With credit: oops, i spent $100 already. Oh well, one more won't hurt me.
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incognito_man


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PostPosted: Sat Sep 29, 2012 9:03 pm    Post subject: Reply with quote

theJ wrote:


I don't know about good, but for 60% of Americans they work out. The other 40% will battle debt and credit problems for a sizable chunk of their lives.

And back to my original point - there exist debit cards with cash back policies. So what would be the advantage of a credit card then?


1] Safety
2] Build credit
3] Rewards are better on CC.
4] Free 30-day loan for those 60% of Americans who pay off their bill at the end of the month.

Follow-up question, what's the disadvantage of using a CC instead of a debit card?
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incognito_man


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PostPosted: Sat Sep 29, 2012 9:05 pm    Post subject: Reply with quote

theJ wrote:

My wife and i recently started doing this. I can profess that this is true. And not only that, but if you take out $100 from the bank at the beginning of the month and say "this is what i get for everyday, general use (not counting food)". If you run out, you're out. There's no cheating with this method like there is with credit.

With credit: oops, i spent $100 already. Oh well, one more won't hurt me.


Seems like a tactic to overcome mental weakness.

If you are truthful with yourself there's no need to avoid credit.
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BornToFly


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PostPosted: Sat Sep 29, 2012 9:08 pm    Post subject: Reply with quote

incognito_man wrote:
theJ wrote:


I don't know about good, but for 60% of Americans they work out. The other 40% will battle debt and credit problems for a sizable chunk of their lives.

And back to my original point - there exist debit cards with cash back policies. So what would be the advantage of a credit card then?


1] Safety
2] Build credit
3] Rewards are better on CC.
4] Free 30-day loan for those 60% of Americans who pay off their bill at the end of the month.

Follow-up question, what's the disadvantage of using a CC instead of a debit card?


I realize this is from Ramsey himself, but it's a good video about why to avoid CC.

http://www.youtube.com/watch?v=dyDswUgLgzE
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Mohr


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PostPosted: Sat Sep 29, 2012 9:17 pm    Post subject: Reply with quote

I picked up the book "Complete Guide to Money" today because of this thread. Its pretty interesting so far.
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incognito_man


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PostPosted: Sat Sep 29, 2012 9:30 pm    Post subject: Reply with quote

BornToFly wrote:


I realize this is from Ramsey himself, but it's a good video about why to avoid CC.

http://www.youtube.com/watch?v=dyDswUgLgzE


wow

if this is an accurate representation of him I cannot believe people find him worth listening to.

yikes...
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IrishGreen


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PostPosted: Sat Sep 29, 2012 9:41 pm    Post subject: Reply with quote

incognito_man wrote:
BornToFly wrote:


I realize this is from Ramsey himself, but it's a good video about why to avoid CC.

http://www.youtube.com/watch?v=dyDswUgLgzE


wow

if this is an accurate representation of him I cannot believe people find him worth listening to.

yikes...


lol no kidding. it's like wut?
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Matts4313


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PostPosted: Sat Sep 29, 2012 9:49 pm    Post subject: Reply with quote

BornToFly wrote:

Not only that, but debt=risk. Always. Nobody ever thinks that when they buy a computer from best buy on a credit card with 0% int for a year that they might lose their job and have a hard time finding another. Thus can't repay the comp ( or whatever you bought with a 0% credit card )


There is risk in everything. One could just as easily argue that if you lost your job, it would be better to have the $1500 in your pocket (with a ~$50 monthly payment) vs the computer paid off. What it boils down to is overextending yourself financially.


The Ramesy method is great for a certain segment of the population... but it doesnt make the most sense "by the numbers".
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