Comment by tristor | Hacker News Reader

Comment by tristor | Hacker News Reader

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> Of those who carry credit cards in the US, 60% of them carry a balance [0].

Carrying a balance is not automatically the worst choice. I have a massively positive net worth (for a working stiff), so could effectively have $0 debt at any point in time, inclusive of my mortgage, but all debt is not equal, nor are all investments. Credit card debt is clearly one of the worst forms of debt with the harshest interest rates, yet even in that case selling investments and paying taxes on them and forgoing future earnings on those investments to pay off a credit card immediately vs over a few months is not necessarily the right decision.

Credit cards are about providing you float so you can smooth out cash flow. As an example, I am about to do some home renovations, I expect to spend ~$40k to do so, I also expect to earn and pay off that $40k over the following 4 months. My options are I can carry a balance on a credit card, I can keep my home in a partially renovated state for longer to pay cash, or I can take our a HELOC which has a high origination cost and acts as a secondary lein on my house. The credit card + carrying a balance for 4 months and having my home back in a finished livable state faster is clearly the best choice, but it means I'm in that 60%.

These choices aren't binary, the problem is that many people are not financially literate enough to consider their options and outcomes and choose the best choice, they either have a default choice with no consideration, or no real choice, both with negative outcomes.

Another option is to do margin borrowing on some investment assets that you have. Because it is a secured loan the interest rates are much cheaper than credit cards. Schwab has a good set up, it can be configured to automatically do a loan if you withdraw more funds from your checking account than you have. They currently charge about 12% but there are other options around 6%.

My friend used this set up for his emergency fund since he felt like it would be better to earn an investment return and take a loan in an emergency instead of sitting around having your money earn minimal amounts in a checking account.

Yes, borrowing on margin is a really good strategy, although it depends on your broker how that functions. I've had a good experience using this for smaller amounts, but given market volatility I'm concerned about borrowing this large of a sum on margin, as I don't know what clown stuff is going to happen in the next 6 months, a credit card feels lower risk to me, although the interest rate is higher. I actually considered this, using a credit card will cost me $530 in additional interest over taking margin, but has lower risks in my estimation. That $530 is not enough for me to feel it's worth it to do it via a margin loan.

That said, margin is really useful as a tool because it lets you unlock the value of your investments without tax penalties in lower volatility markets.

I suppose. I just did similarly priced renovations and chose to put off the whole thing until I could do the whole thing with cash. But everyone is in a different situation. While I’ve been at my job for nearly 20 years, the layoffs are frequent, and I’ve never felt any meaningful level of job security. This leads me to seek risk reduction, and part of that is eliminating as many financial obligations as possible. In theory I could probably make more investing (if we ignore the psychology aspects), but in practice it’s had the side effect of dramatically increasing how much in invest on a monthly basis after getting all the debt eliminated (which was really only the house). The peace of mind comes more from those low fixed expenses than from the savings. If I had to, I think I could make ends meet working retail, without dipping into savings/investments. I think about this more often than is probably healthy.

I empathize with that situation, it's something that weighs on my mind a lot as well. One of my goals is definitely to get the mortgage cleared out sooner rather than later. In some ways I'm rolling the dice, but I also feel like I'm safe from layoffs at least one quarter at a time (e.g. I don't think it will be so sudden, it'll align with quarterly earnings), and anything I can pay off in a quarter of work is worth rolling the dice on, even though there's always some risk there.

My plan of the moment is to get to a point where my expenses are minimized (e.g. house is paid off) and I can cover basic living necessities on investment income, and do some type of artisan home business. I keep thinking I'm going to really seriously get into carpentry, which has been a long-time hobby, or open a mechanic's shop (my other long-time hobby).

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