Comment by dcherman | Hacker News Reader

Comment by dcherman | Hacker News Reader

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If you treat a credit card the same as cash, then there is literally no difference in how much you should be spending, but you need the discipline to actually do that.

There are a number of benefits to using credit cards that cash doesn't have:

1. Build a credit score

2. Fraud protection

3. Related to 2, but if I lose my card it's not a huge deal, cancel it and get a new one. If I lose 300$ cash, it's just gone.

4. Rewards! ( 1-3% back on 20K spending per year is a few hundred bucks )

5. Extended Warranties. Often times, you can get an extra year or more on warranties through your credit cards. That's why I put my new kitchen appliances on my Amex.

6. Free loans! I re-did my kitchen last year at about a 10K cost. Although I had the cash to do so, I instead signed up for a new card with 18 month 0% interest. That gave me another year and a half of saving before paying that off, so it's less of a hit to my balance at once. IMPORTANT I would not have done this if I did not have the cash to pay this off at any point in time.

It's really, really simple too - just pay off your statement balance in full each month and you'll never pay interest. I can count on one hand both how many times I've paid interest, and how much I've paid in interest. All of them were due to my own screw ups with scheduling payments ( off by a day - oops! ), however I've benefited far more from the cards than I've ever paid out. In most of those cases, the banks waived the fees anyway since there was a track record of 3-5+ years of never missing a payment, always paying in full.

There's a built in assumption here that you need credit... if you don't need credit then all this is moot. Everyone's so keen to be part of the system that they never stop to wonder what they're chasing... there are justifications and rationalizing and whatever else it takes to belong. None of it's necessary. The 1-3% cash back and the air miles and the fraud protection and all these other goodies they promise you are bribery to use their card so that they can get the scale they need to make the system profitable for them. They sell your information, aggregate it to marketing companies, it's a means to track your every purchase electronically etc. etc.

If you'd paid cash you could have got a better deal from suppliers by negotiating cash discounts and nobody would be aggregating your information or tracking your purchases to target advertising to try to further their way into your wallet. If you'd paid the $10K up front, which you had the cash to do so, what did you do with that $10K? Did it just sit in your bank giving you an illusion of a bank balance or did you invest it to make some return to justify putting it on credit and putting off until tomorrow what you could have paid for today? You purchased this kitchen effectively putting a lien on that money, it's no longer yours... but having it in your account still gives you the illusion that it is. It only takes something unexpected happening and that money that's not yours [which is still in your account] is easy to dip into for an emergency with the expectation that you'll pay back into it another day when you can afford that - a day that never comes, until that kitchen you've been enjoying for the last 18 months and now can't live without needs paying for...

It's ridiculously easy to get sucked into the trap of cycling one debt after another and then you're stuck with your only options being: Sell everything you own to pay it off, claim bankruptcy and start again from scratch or strive for a higher paying job, putting yourself under extra stress... and for what? The ability to raise your debt load. It's not really much surprise, the entire capitalist economy is built on debt, without it, there would be no economy. The U.S. currency is loaned (at interest) by the Fed to the U.S. Government, so debt goes right to the very foundation of the entire economy. So it's an ever perpetuating cycle.

There are rationalizations on both sides of the fence. For the record, I'm not dead against credit, I'm just saying that for every rationalization that can be offered to use credit, there are equally many reasons to avoid it.

You do need credit though unless you never intend on financing a car or purchasing a house with a mortgage.

While it may be entirely feasible to get along your entire life without financing a car by either purchasing used cars or inexpensive new ones, for 99% of people ( including myself ), it's extraordinarily difficult to purchase a home in a reasonable amount of time ( 10-15+ years saving required for a barebones house most likely ).

You could argue that prices are like this due to the easy availability of credit ( see 2008 or the problems with student loans/college prices ), but that doesn't change the reality that some things are extremely expensive and for nearly all people will require some type of loan. At that point, not having a good credit score will cost you dearly in much higher interest rates.

As for my kitchen, the reason you gave it exactly the reason that I did it. Although I did net an additional 100$ or so in interest over the course of the year as well due to it being in my savings account ( yay!...kinda? ), the primary reason was in the event of an emergency. Any emergency that would require an additional $10,000 is likely to be medical, family, or loss of job related. Since I have insurance, that means that the most likely scenario is family or job related; in either instance, the availability of cash to help a member of my family out or pay my mortgage for 6 months would be more important to me than the costs associated with financing that card for a period of time. In addition, I would still be able to pay the card off by selling a bit of stock, however I wanted the additional liquidity by having cash on hand. I don't make decisions like that lightly; all of those scenarios were considered before I decided to go the 0% card route.

Having financed my last 6 cars - all bar one of them from new and having made a vehicle payment every month of my adult life, I've learned that financing new vehicles is a fools errand. What you get in perceived reliability (and it frequently is only perceived), you lose in depreciation the minute it gets driven off the lot. When I've paid the final payment on my vehicle this month, I will continue paying that same amount into an account until this vehicle dies or has a repair bill beyond what it would cost me to replace it. I predict (hopefully accurately) that if I continue to look after it well, I should have plenty enough money in the bank to purchase my next (nearly-new-but-used-and-still-has-warranty) vehicle outright with someone else having taken the depreciation hit instead of me. Admittedly, I got to where I did now with credit, so my picture isn't black and white. I could have continued to use my bike for a few years, putting aside the money for a vehicle until I had enough to pay outright, I didn't - but that was the impatience of youth. If I'd had no/bad credit at the time, I'm sure being who I am, I would have found another way.

As for a house, it definitely doesn't take 10-15 years if you think outside the box cultured by our society.

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