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Comment by randrews | Hacker News Reader

You can buy things you don't need, and you can buy things with money you don't have, but doing both at the same time is a really bad idea.

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The most useful way of thinking of CC debt is how much it INCREASES THE PRICE of what you buy.

That nice lunch might cost 20$ if you paid cash, but use your CC and it's really 20$ + the interest you are going to pay. If it's going to take you 4 years to pay off your 20% APR CC debt then that 20$ lunch is really 41$ 50c.

PS: That is not to say paying cash for lunch changes the numbers when you are in debt; CC increases the cost of "everything" you buy without exception.

If you pay it off in full, and get 2% cashback then that lunch cost you $19.60

You know, obviously you are right. But, I think people (especially intelligent HN type people) greatly underestimate how much psychological tricks affect them. I know deep down that spending with credit card is the same as spending with cash. But, I tracked my spending using cards and only withdrawing from ATMs and using cash. I spent about 20% more. And my life didn't feel any better or anything. Now I use credit cards on the big stuff- like travel, transportation costs, and other large ticket items where credit versus cash is unlikely to affect me spending habits. Point is, you get some tiny cash back, but I think for 99% of people you spend more than you get.

I find it's easier to track spending by credit card.

I download a csv of my transactions, import into ledger (https://github.com/jwiegley/ledger/wiki/ it's like mint, but for the command line), then just "ledger balance --cost expenses". All my CC transactions are labelled ("expenses:entertainment:bar", "expenses:computer:github"), then I have a big black box: "expenses:cash".

This is actually the reason McDonald's started taking credit cards. Studies find this again and again that people buy more when putting it on their credit card.

Do you think giving 2% cash back is just the credit card companies being generous? They are making way more through that scheme. Plus, those cash-back cards generally take a higher percentage which will lead to higher prices to compensate.

I'm the opposite, when I withdraw cash and spend it, I have no idea where it went. When it is electronic, then my weekly accounting will show me where I've been spending money and I'm more careful with it.

The best thing I ever did to save money was to track where I'm spending it.

Or 5% cashback sometimes (look at Discover More etc).

Those 5% deals are generally time limited. Also not available in every country.

But only because the credit card company charges merchants an unnecessary extra 2% in fees so they can bribe you with your own money.

The cost of that lunch should be $19.60, or less.

Debit cards also give cash back.

It helps to know that but the problem is that you don't really feel the weight of the extra cost as we tend to discount the importance of things we see as being off in the future. Sure that dinner is going to ultimately cost me $41 but that's spread out between next month and 4 years from now whereas getting that dinner now gives you an immediate reward and our brains are wired to weight immediate rewards more heavily.

Ah, yes. That's what I meant, good catch.

It's always been my rule. :) If I've had to put groceries (or whatever) on a credit card, I'm not also buying a video game that month.

I think it's pretty safe to say that the people in debt don't know about this rule :/

By say, taking out student loans?

Considering that this is pretty much the primary way that education is paid for these days, simply repeating "debt is a bad idea" hardly seems adequate.

(and I am personally happy to be debt-free but I can see why my indebted friends made the choices they did, however badly they may have worked out).

Unless you're going to a top-tier college and majoring in a marketable skill, that is a bad idea too.

There's a bubble in higher education where many people are being promised a good life merely by going to college. These people get out of college, find out that such a good life was just a mirage, and then find out that the $200K in debt they took on for it wasn't such a great idea either.

The responsible thing to do there is to just say no. Don't go to college, and find ways to prove that you can add value to people without that college degree.

> The responsible thing to do there is to just say no.

Or just go to a college that doesn't charge $200k in fees?

That works too, if there are any left.

Actually, a bunch of top colleges will give you a full ride if you're under a certain income, so if you get one of those packages, take it.

Well, I'm in Quebec, so a BEng at a very good university like McGill costs less than $4k a year, all fees and insurance included. Granted, the US appears to be more expensive.

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