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tylerdouglass


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PostPosted: Fri Nov 16, 2012 3:09 am    Post subject: Reply with quote

Harper41 wrote:
Ill be the first to admit I don't know too much about credit cards. Would it be smart to get one and just use it for everyday purchases like food and gas while in college? Stuff that I know I can pay off


Based on what I've gathered from friends and family who've had success with credit cards, using a CC and paying it off each month (so you don't have to pay interest) has several benefits. If you're smart about it and don't live outside your means, you should be fine.

Paying interest isn't always bad as long as you're actually able to do it, but the financial situation I'm in, I can't really afford to pay interest.
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Harper41


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PostPosted: Fri Nov 16, 2012 3:12 am    Post subject: Reply with quote

tylerdouglass wrote:
Harper41 wrote:
Ill be the first to admit I don't know too much about credit cards. Would it be smart to get one and just use it for everyday purchases like food and gas while in college? Stuff that I know I can pay off


Based on what I've gathered from friends and family who've had success with credit cards, using a CC and paying it off each month (so you don't have to pay interest) has several benefits. If you're smart about it and don't live outside your means, you should be fine.

Paying interest isn't always bad as long as you're actually able to do it, but the financial situation I'm in, I can't really afford to pay interest.

Yeah, I'm transferring to University of Alabama next semester so I thought it would be wise to start building credit so I at least have a little built up when I'm done with school. I'll likely just be using it for fast food, gas and beer Laughing
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tylerdouglass


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PostPosted: Fri Nov 16, 2012 3:15 am    Post subject: Reply with quote

Harper41 wrote:
tylerdouglass wrote:
Harper41 wrote:
Ill be the first to admit I don't know too much about credit cards. Would it be smart to get one and just use it for everyday purchases like food and gas while in college? Stuff that I know I can pay off


Based on what I've gathered from friends and family who've had success with credit cards, using a CC and paying it off each month (so you don't have to pay interest) has several benefits. If you're smart about it and don't live outside your means, you should be fine.

Paying interest isn't always bad as long as you're actually able to do it, but the financial situation I'm in, I can't really afford to pay interest.

Yeah, I'm transferring to University of Alabama next semester so I thought it would be wise to start building credit so I at least have a little built up when I'm done with school. I'll likely just be using it for fast food, gas and beer Laughing


Until you get the hang of it, I'd never put more on my card that I can't turn around and repay out of my checking account right away.

That's my plan anyways. I've got a really good willpower when it comes to money, so I won't be overspending. If it's going to be easy for you to overspend thinking "I can pay it back later" getting a CC is pretty risky.

And remember, I'm just retelling the advice I've been given by people who are good with money, I'm not speaking from experience.

If anyone who has CC experience wants to correct me, feel free.
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NextBigThing


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PostPosted: Fri Nov 16, 2012 3:22 am    Post subject: Reply with quote

As a habit & rule of thumb, it isn't a good to spend money one doesn't have.

The real trick with credit cards & any kind of debt really - the only way to truly make it work for you to an advantage is if you invest said money not spent upfront & the rate of return beats the interest rate. You have used the money not used in the very beginning to generate even more money, and at the end you have more saved than you would have had you simply paid for it up front.

For example: buy $2000 t.v.
Case 1: pay $2000 upfront
Outcome: $-2000 from account, +T.V.

Case 2: Credit Card Payment Plan, pay $100 up front, the remaining 1900 over 35 months with interest. Total paid for TV will be $2700.
-Invest the $1900 not used. 35 months from now, the $1,900 is now $3,000.
Outcome: $-1700 (see, made $300), +T.V.

Thing is, that isnt overly easy to do.

Personally, I think it;d be best to build up some decent savings AND having a steady income which covers your entire budget before doing any real spending on a credit card. Credit cards are hardly evil if you use them wisely; my friend has gotten like 20 free DVD's and a bunch of free hotel nights from his credit card company; the sad thing is - it is the money from stupid, irresponsible people that is really paying for those things. Do not be one of them.

If it is a NEED - like, rent has to be paid. Suits are needed to work. Etc. Then I suppose it is worth the initial investment. Otherwise, it is best to stay away from them so early n the game.
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Superman(DH23)


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PostPosted: Fri Nov 16, 2012 9:58 am    Post subject: Reply with quote

tylerdouglass wrote:
snkhd09 wrote:
tylerdouglass wrote:
Superman(DH23) wrote:
tylerdouglass wrote:
FWIW I'm opening an Amazon Visa Card this week. Plan on paying it off immediately after use to avoid interest, but I'll still get the small rewards for using it and I'll be building some credit.

My credit is already good due to an auto loan I paid off well before I needed to, but I haven't worked on my credit since then.
Your best bet is to get a major credit card, don't pay it off every month, keep a small balance so you have to pay a small finance charge.


I've hear from multiple people (including my parents who have nearly perfect credit) that that is just a myth.

Most of them claim it's a rumor started by the credit card companies, and honestly, that makes sense.

Why would your credit score go up more for not paying off every chance you get, as opposed to paying off your debt ASAP?


It's one of the most common myth about credit score.

http://money.usnews.com/money/blogs/my-money/2010/08/24/six-popular-credit-score-myths

http://money.msn.com/credit-rating/7-nasty-credit-myths-that-will-not-die-weston.aspx

http://finance.yahoo.com/news/8-common-credit-myths-debunked.html

http://www.dailyfinance.com/2011/02/14/top-five-credit-score-myths/

http://www.investopedia.com/articles/basics/08/financial-myths.asp


Certainly seems like a rumor the CC company's would start. It benefits them in a big way.
It's not really a myth, the credit system is built by the banks, its designed to favor them. Obviously you'll still build credit paying it off every month, it doesn't hurt, but the best way to build credit is having a little debt, and making timely payments.
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Flaccomania


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PostPosted: Fri Nov 16, 2012 10:00 am    Post subject: Reply with quote

theJ wrote:
vike daddy wrote:
Flaccomania wrote:
They aren't terrible ideas so long as you read the fine print -- which comes back to responsiblity.

I have a Best Buy store card which came with 36 months no interest and I bought a TV with it. I had the cash to buy it right then, but no interest for 36 months means I can throw $100 at it the first month and then $30/month for the next however many months (total was like $1180) and not pay a dime of interest. The fact that I'm paying $1180 over 3 years actually helps out because over 3 years, I'm increasing in salary and therefore the money because a smaller and smaller hit overall as opposed to ponying up the $1180 all at once in the beginning.

Now, if I wasn't sure I'd be able to easily pay off the $1180 if I lost my job or something, I wouldn't have done it -- but since I am responsible and set money aside just in case, there's no reason not to take advantage of such an offer. I know if I miss a payment the 0% goes away and they kill me with interest (which almost happened due to an error on their part), but I have it set up automatically online to be paid well in advance (plus threw the $100 the first month just to be ahead of the game) so that I won't receive the big hits.

Again, all comes back to responsiblity.


Applause

well done! that's beating the system the credit card company hopes you never discover.

Of course, you really only gain something if you do something with that money (meaning: invest) during that time you're borrowing it. Otherwise everything is the same.

And that's what bothers me most about people doing this and saying they gamed the CC company. Well if you didn't make anything in interest during that 0% period, you didn't game anyone.

I mean, if you didn't have the money up front (like bigjohnson doesn't), then i can see the purpose. But if you already have the money...what exactly is the point? I know the first response will be "well i had the money in my bank in case of emergency". Ok, so in that emergency, you spend the money in your account, and presumably can't pay the bill under this scenario, so you rack up interest. If you had just paid it off, you probably sell the item or find another way to get the money.
(EDIT: Additionally, if you're debating whether to keep the money for an emergency, or spend it on some item, you probably shouldn't be spending it, free loan or not)

But it's whatever. I get what you guys are saying. I just think some of the reasoning is silly sometimes.


I think you misunderstood the "emergency" portion of my post. It was that "Hey, I have $1100 I can put towards this TV -- but since I can get 0% for the next 3 years, I'm going to stash it away in case I lose my job. In that event, I still have that $1100 to continue paying the bill." It's still gaining interest and in the event I keep my job (which is the case), I can take out small "loans" from that emergency account for a week or two to buy other things I need immediately that if not for the emergency "loan", I'd bring my overall "set aside" fund down further than I'd like it to be.

So, while the interest gained on the $1100 is really minimal, it also helps me to be able to afford things in cash that I otherwise would have second guessed since it's a "fall back" that I can borrow against. And while if I lose my job I'll still need to pay that bill back, it's still just be a $30 monthly hit which is a lot easier to afford than being down $1100 further with no monthly hit. I could then spread that $1100 over a few bills for a month or two if needed before I found a new job and then replenish it as needed.
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Flaccomania


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PostPosted: Fri Nov 16, 2012 10:07 am    Post subject: Reply with quote

theJ wrote:
vike daddy wrote:
theJ wrote:
Interest free credit is great if you can make interest in the midterm (or don't have the cash on hand), but otherwise you literally gained nothing.

a new guy without established credit already does gain the advantage of being able to point to a clean payment history, when attempting to get a larger credit line.

that's something.

I get building credit through regular use of a credit card for standard purchases (like gas, food, etc, basically things you buy all the time). I don't get the people saying they made this amazing deal where they got a 12 month interest free loan when they had the money in the bank and don't plan on doing anything with that money in the interim.

Does that make sense? I feel like i'm not articulating this very well, and people are mistaking me for this guy that hates credit under all circumstances. I don't. I get it. I just don't understand financing non-regular purchases when you have the money.


While it was only a secondary reason for me, it helps to spread out the "hit" over the long term and therefore, in the event of an emergency, it's easier to take care of paying for it.

Say you have $1100 and you drop it on the TV. Great, it's paid for in full, nothing to worry about.

2 weeks later, you lose your job. Your mortgage payment is coming up, no problem, you have the money in an emergency fund.

A month later, still no job. Another mortgage payment coming up. Don't you think that $1040 you have (using my $30/month payment idea) could go a lot longer of a way to helping you than not having it?

I understand your idea about the "risk" portion of it -- but in my opinion, it carries very little risk (if set up properly) and actually helps to quell other risks that are out there by having some extra "cash on hand" in case of big emergencies. I'd rather risk missing a payment on the TV and facing the interest over missing a mortgage payment because I don't have $1000+ to help me in a pinch.
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tylerdouglass


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PostPosted: Fri Nov 16, 2012 10:07 am    Post subject: Reply with quote

Superman(DH23) wrote:
tylerdouglass wrote:
snkhd09 wrote:
tylerdouglass wrote:
Superman(DH23) wrote:
tylerdouglass wrote:
FWIW I'm opening an Amazon Visa Card this week. Plan on paying it off immediately after use to avoid interest, but I'll still get the small rewards for using it and I'll be building some credit.

My credit is already good due to an auto loan I paid off well before I needed to, but I haven't worked on my credit since then.
Your best bet is to get a major credit card, don't pay it off every month, keep a small balance so you have to pay a small finance charge.


I've hear from multiple people (including my parents who have nearly perfect credit) that that is just a myth.

Most of them claim it's a rumor started by the credit card companies, and honestly, that makes sense.

Why would your credit score go up more for not paying off every chance you get, as opposed to paying off your debt ASAP?


It's one of the most common myth about credit score.

http://money.usnews.com/money/blogs/my-money/2010/08/24/six-popular-credit-score-myths

http://money.msn.com/credit-rating/7-nasty-credit-myths-that-will-not-die-weston.aspx

http://finance.yahoo.com/news/8-common-credit-myths-debunked.html

http://www.dailyfinance.com/2011/02/14/top-five-credit-score-myths/

http://www.investopedia.com/articles/basics/08/financial-myths.asp


Certainly seems like a rumor the CC company's would start. It benefits them in a big way.
It's not really a myth, the credit system is built by the banks, its designed to favor them. Obviously you'll still build credit paying it off every month, it doesn't hurt, but the best way to build credit is having a little debt, and making timely payments.


idk man, all 5 of those links disagree with you. Along with my family members (notably my parents and grandparents) who are great with money.

Quote:
You are building credit, based on your payment history and your balance, regardless of whether or not you pay interest to the credit card companies. The effect on your credit remains the same.


Quote:
Your credit reports and scores don't "know" whether you're carrying a balance or paying it off in full every month. That's because the balance reported to the credit bureaus typically is the balance from your last statement, not what was left over after you got that statement and paid the bill. So you might as well pay in full and save yourself the interest.


Quote:
The credit bureaus are privy to your payment history and the balance on your monthly credit card bill, ďbut they donít know if youíre paying interest or not,Ē Nazari says. This means deciding to pay the minimum each month isnít going to do much more than cost you money, especially if youíre carrying a particularly high annual percentage rate. The lesson? Donít forgo payments just to carry a balance month to month.



Quote:
"Folks think they have to carry a balance on their cards in order to get a good credit score," says Opperman. "We let them know they just have to make a purchase and then make a timely payment." If you have cards with high balances, even if you make your minimum payments promptly every month, the large amount of debt you're carrying makes you look like a higher risk to the credit bureaus and will reflect poorly on your score.


Quote:
It's not carrying a balance and paying it off slowly that proves your credit worthiness. All this strategy will do is take money out of your pocket and give it to the credit card companies in the form of interest payments

Read more: http://www.investopedia.com/articles/basics/08/financial-myths.asp#ixzz2COWcEFMv

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Flaccomania


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PostPosted: Fri Nov 16, 2012 10:12 am    Post subject: Re: Getting a Credit Card Reply with quote

TheVillain112 wrote:
Also be careful signing up for too many cards. Department score cards, gas cards, bank card, etc... It can start adding up and if you have too many cards it can hit your credit. Plus if you're lazy like me, you'll forget when to pay which. Which is why I keep only two cards...


Yep that happened to me last year. As mentioned, I opened a Best Buy credit card for the 0%, I went and got a CC that offered me points vs. the one I already had that didn't (didn't have a balance), my name was on my parent's gas CC account, had my mortgage, car payment, and was also looking into buying a new car at the time so they ran my credit, and was inquiring about a refinance so they also ran my credit. In a year of paying my mortgage, car payment, credit cards, etc all on time, never missing a payment, my credit went down. I hadn't realized that just having lines of credit open, even if no balance, hurts your credit because theoretically you "could" go out and rack up more debt easily. I since closed the CC I don't use anymore, got my name off my parents gas CC account and put off on anything that would run my credit, and it's back up to where it should be. It wasn't a big hit by any means, but still shocking to see your credit go down when you are making all of your payments on time.
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Flaccomania


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PostPosted: Fri Nov 16, 2012 10:17 am    Post subject: Reply with quote

tylerdouglass wrote:
Harper41 wrote:
tylerdouglass wrote:
Harper41 wrote:
Ill be the first to admit I don't know too much about credit cards. Would it be smart to get one and just use it for everyday purchases like food and gas while in college? Stuff that I know I can pay off


Based on what I've gathered from friends and family who've had success with credit cards, using a CC and paying it off each month (so you don't have to pay interest) has several benefits. If you're smart about it and don't live outside your means, you should be fine.

Paying interest isn't always bad as long as you're actually able to do it, but the financial situation I'm in, I can't really afford to pay interest.

Yeah, I'm transferring to University of Alabama next semester so I thought it would be wise to start building credit so I at least have a little built up when I'm done with school. I'll likely just be using it for fast food, gas and beer Laughing


Until you get the hang of it, I'd never put more on my card that I can't turn around and repay out of my checking account right away.

That's my plan anyways. I've got a really good willpower when it comes to money, so I won't be overspending. If it's going to be easy for you to overspend thinking "I can pay it back later" getting a CC is pretty risky.

And remember, I'm just retelling the advice I've been given by people who are good with money, I'm not speaking from experience.

If anyone who has CC experience wants to correct me, feel free.


I'd agree with this for first time CC people.

Basically consider it a debit card -- if you don't have the money available such that you can pay it off immediately, then don't use it. That's what I did for much of my college years.

Though now that I'm well out of college, I do occasionally buy some things that would make me a bit tighter than I'd like if I were to pay it off immediately, but I take the small risks because I understand them and accept them. For instance, with winter coming up, I re-seeded my lawn and wanted to get lattice work on my deck finished. The lattice work I paid for in cash, but the grass seed (which is freakin' expensive for just grass seed btw) ran me about $300 total. I could have paid in cash but my emergency fund would go past the point I like to keep it above (which I try to avoid at all costs) so I put it on the CC knowing even if I take a small interest hit, I'll have it paid off in just a few weeks -- but, I didn't want to wait to do it because it was getting colder by the day.
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milanb


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PostPosted: Fri Nov 16, 2012 10:22 am    Post subject: Reply with quote

tylerdouglass wrote:
Harper41 wrote:
tylerdouglass wrote:
Harper41 wrote:
Ill be the first to admit I don't know too much about credit cards. Would it be smart to get one and just use it for everyday purchases like food and gas while in college? Stuff that I know I can pay off


Based on what I've gathered from friends and family who've had success with credit cards, using a CC and paying it off each month (so you don't have to pay interest) has several benefits. If you're smart about it and don't live outside your means, you should be fine.

Paying interest isn't always bad as long as you're actually able to do it, but the financial situation I'm in, I can't really afford to pay interest.

Yeah, I'm transferring to University of Alabama next semester so I thought it would be wise to start building credit so I at least have a little built up when I'm done with school. I'll likely just be using it for fast food, gas and beer Laughing


Until you get the hang of it, I'd never put more on my card that I can't turn around and repay out of my checking account right away.

That's my plan anyways. I've got a really good willpower when it comes to money, so I won't be overspending. If it's going to be easy for you to overspend thinking "I can pay it back later" getting a CC is pretty risky.

And remember, I'm just retelling the advice I've been given by people who are good with money, I'm not speaking from experience.

If anyone who has CC experience wants to correct me, feel free.


That's good advice.

In general, you want to make sure that you can pay off your balance at the end of the month. There are exceptions to the rule, though. I have a card whose interest rate is fixed at 4.8% through 2015 with no annual fee, although I suspect that you have to have a really good credit rating to get one of these things. Anyway, I keep it around in case of emergency.

I have found that it takes about two or three years to build up your credit rating, but once you've done that it is shockingly easy to obtain a low-interest credit card or unsecured line of credit.

Also, it is important to limit the number of cards you have to about three and to monitor your limits on these cards. Because if you want to apply for a mortgage or car loan down the road, the bank will add up the limits and not the existing balances on your cards when calculating your liabilities. It could really cut into your borrowing power.
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PostPosted: Fri Nov 16, 2012 12:31 pm    Post subject: Reply with quote

tylerdouglass wrote:
Superman(DH23) wrote:


It's not really a myth, the credit system is built by the banks, its designed to favor them. Obviously you'll still build credit paying it off every month, it doesn't hurt, but the best way to build credit is having a little debt, and making timely payments.


idk man, all 5 of those links disagree with you. Along with my family


Yes.

Your credit score is only a measure of default risk. It is not a measure of your tendency to generate revenue for your lenders. Leaving a balance on your credit card has no beneficial effect on your credit score.
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PostPosted: Fri Nov 16, 2012 1:15 pm    Post subject: Reply with quote

Flaccomania wrote:
While it was only a secondary reason for me, it helps to spread out the "hit" over the long term and therefore, in the event of an emergency, it's easier to take care of paying for it.

Say you have $1100 and you drop it on the TV. Great, it's paid for in full, nothing to worry about.

2 weeks later, you lose your job. Your mortgage payment is coming up, no problem, you have the money in an emergency fund.

A month later, still no job. Another mortgage payment coming up. Don't you think that $1040 you have (using my $30/month payment idea) could go a lot longer of a way to helping you than not having it?

I understand your idea about the "risk" portion of it -- but in my opinion, it carries very little risk (if set up properly) and actually helps to quell other risks that are out there by having some extra "cash on hand" in case of big emergencies. I'd rather risk missing a payment on the TV and facing the interest over missing a mortgage payment because I don't have $1000+ to help me in a pinch.

I guess we have different ideas of how to handle money (and i know i'm different than normal.

Before i get my paycheck, at the beginning of every month, every dollar is earmarked for a purpose. I have my 6-month emergency fund, and it's for the purpose of paying bills if i lose my job. If i want to buy an $1100 TV, i save the money every month until i'm ready to buy it. Then i pay in full. I don't worry about taking a "monthly hit" because i've already done it for 6 months. It's over. It's paid for, and it's one less worry on my plate. And by doing it this way, i will never ever once in my life miss a payment, because i financed it 6 months ahead of purchase. I have no wish to finance it another 2 years. I don't need a whole chapter of my life dedicated to paying off a TV.

If for some reason i get laid off and it takes longer than 6 months to find a job, the TV is irrelevant. If i truly need a portion of that money, i'd rather sell possessions than miss payments to do it. At least that way i only have one lender calling me (the mortgage company).

Honestly i wish more people would adopt my approach or way of thinking about it. The 0% financing works for some, but for many it is a huge trap. I'm glad you're responsible with it, but the majority of people aren't. If they were, those deals wouldn't exist.

Anywho, i'll retreat back to my backwards lifestyle. I'm not trying to convince anyone, but if i do i hope it helps you. Learning to manage money in a way that makes sense to you (and helps you build wealth) is one of the most important lessons in life.
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PostPosted: Fri Nov 16, 2012 1:17 pm    Post subject: Reply with quote

milanb wrote:
tylerdouglass wrote:
Superman(DH23) wrote:


It's not really a myth, the credit system is built by the banks, its designed to favor them. Obviously you'll still build credit paying it off every month, it doesn't hurt, but the best way to build credit is having a little debt, and making timely payments.


idk man, all 5 of those links disagree with you. Along with my family


Yes.

Your credit score is only a measure of default risk. It is not a measure of your tendency to generate revenue for your lenders. Leaving a balance on your credit card has no beneficial effect on your credit score.

This is the approach i've always taken. Even if it isn't a myth, it's certainly unsubstantiated, so i'll save my couple of bucks every month, thank you very much. And if my credit score is 10 points lower than yours, i don't give a rip because i saved money.
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PostPosted: Fri Nov 16, 2012 1:44 pm    Post subject: Reply with quote

theJ wrote:
Flaccomania wrote:
While it was only a secondary reason for me, it helps to spread out the "hit" over the long term and therefore, in the event of an emergency, it's easier to take care of paying for it.

Say you have $1100 and you drop it on the TV. Great, it's paid for in full, nothing to worry about.

2 weeks later, you lose your job. Your mortgage payment is coming up, no problem, you have the money in an emergency fund.

A month later, still no job. Another mortgage payment coming up. Don't you think that $1040 you have (using my $30/month payment idea) could go a lot longer of a way to helping you than not having it?

I understand your idea about the "risk" portion of it -- but in my opinion, it carries very little risk (if set up properly) and actually helps to quell other risks that are out there by having some extra "cash on hand" in case of big emergencies. I'd rather risk missing a payment on the TV and facing the interest over missing a mortgage payment because I don't have $1000+ to help me in a pinch.

I guess we have different ideas of how to handle money (and i know i'm different than normal.

Before i get my paycheck, at the beginning of every month, every dollar is earmarked for a purpose. I have my 6-month emergency fund, and it's for the purpose of paying bills if i lose my job. If i want to buy an $1100 TV, i save the money every month until i'm ready to buy it. Then i pay in full. I don't worry about taking a "monthly hit" because i've already done it for 6 months. It's over. It's paid for, and it's one less worry on my plate. And by doing it this way, i will never ever once in my life miss a payment, because i financed it 6 months ahead of purchase. I have no wish to finance it another 2 years. I don't need a whole chapter of my life dedicated to paying off a TV.

If for some reason i get laid off and it takes longer than 6 months to find a job, the TV is irrelevant. If i truly need a portion of that money, i'd rather sell possessions than miss payments to do it. At least that way i only have one lender calling me (the mortgage company).

Honestly i wish more people would adopt my approach or way of thinking about it. The 0% financing works for some, but for many it is a huge trap. I'm glad you're responsible with it, but the majority of people aren't. If they were, those deals wouldn't exist.

Anywho, i'll retreat back to my backwards lifestyle. I'm not trying to convince anyone, but if i do i hope it helps you. Learning to manage money in a way that makes sense to you (and helps you build wealth) is one of the most important lessons in life.


This is the way to do it. As pointed out earlier, the only one can really benefit from using credit & loans & such is to earn a rate of return higher than the interest.

Many, many people need to understand this. Credit cards for some things make a lot of sense, because you can save money- gas & groceries come to mind. But other than that, it is a terrible idea to become dependent on them.
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