Credit Cards (in the US)

[HaRuMaN]

I know the laws regarding credit cards has changed recently, and am not sure how they work anymore.

I have a card that has a balance at 0% APR (it was a transfer).  If I currently make a purchase on that card, it will be at the normal 7.99% APR.

So, if I make a purchase (@7.99%) and still have some of the zero APR balance on there, and go to make a payment, which gets paid first?

[Donkbaca]

I believe the lower interest rate gets paid first

[jamesjones626]

I know the laws regarding credit cards has changed recently, and am not sure how they work anymore.

I have a card that has a balance at 0% APR (it was a transfer).  If I currently make a purchase on that card, it will be at the normal 7.99% APR.

So, if I make a purchase (@7.99%) and still have some of the zero APR balance on there, and go to make a payment, which gets paid first?

sounds like a question out of a math book.

[Dervacumen]

I assure you whatever is in the banks best interest is what gets paid first.  Certainly nothing that could even remotely benefit you.

[Hoopz]

Highest interest balances paid first: When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first. Common practice in the industry had been to apply all amounts over the minimum monthly payments to the lowest-interest balances first -- thus extending the time it takes to pay off higher-interest rate balances.

The rules were changed so that the consumer would not be automatically disadvantaged by the banks' rules.  That's why banks are doing everything possible to come up with new/different fees to charge consumers.  They are losing money quickly over these new changes so they have to find new income streams.

http://www.creditcards.com/credit-card-news/help/what-the-new-credit-card-rules-mean-6000.php

[Fordman]

or here is another alternative:

PAY CASH!

Im on the Dave Ramsey plan, pay cash! So far, Im debt free except the house and if we stay on the plan, it will be paid off in the next 6 months. Then we work on the retirement plan!

Credit cards are for some fat cat banker getting richer while you get poorer!

I used to be in the credit card trap as well, I just got tired of working for someone else. Heard Dave Ramsey on the radio one day and from there, we have been working hard to be debt free!

Fordman

[ahofle]

Credit cards are for some fat cat banker getting richer while you get poorer!

I used to be in the credit card trap as well, I just got tired of working for someone else. Heard Dave Ramsey on the radio one day and from there, we have been working hard to be debt free!

Fordman

It's only a trap if you don't pay it off each month interest free.  If you pay it off responsibly, then it's better than cash because you get airline tickets for expenditures you would normally have anyway.

[Samstag]

Credit cards are for some fat cat banker getting richer while you get poorer!

Why pay cash when the banks are willing to pay you to use their card?

I use a rewards card to pay for practically everything, including all my monthly bills.  Then I pay the balance off a month later (free loan from the bank behind the card) and every time I hit 5000 points I turn it in for a $50 credit on my statement.

It's not a lot of money (1-3% depending on where I use the card) but as long as they're willing to pay me I'll keep taking it.

[ChadTower]

Why pay cash when the banks are willing to pay you to use their card?

Mostly because cash is a relatively zero risk proposition.  You're not running up a balance to be paid at the end of the month.  The risk of running that up and something odd happening so you can't pay it off within the cycle does exist.

[Donkbaca]

What's the risk?  Its non secured, non-recourse debt?  The worst that could happen to you is that you get some collections phone calls and it hurts your credit.

But if you already have a house and a car, what difference does it make?  Those are the main things you need credit for, other than those two things, who cares? Lets say worst case scenario, you over-leverage your credit cards and default.  You spend 3 grand on a bankruptcy, the debt is gone, you just can't buy a house or a car for the next 3-5 years.

Only makes sense to pay cash for things you use right now, I have my car financed at 1.9% over 60 months, that's less than what inflation usually is.  Instead of paying cash for the car, I financed it, put the rest of the money in an index fund where I expect it to earn between 5 and 10% a year.  Its a no brainer. 

Why are you paying off your house?  My house is financed at like 5%, but I get a tax break for the interest I pay on it, so the effective rate is 3.25 % since I am in the 35% or so tax bracket.  You would be much better off financially if you invested that money, its EASY to beat a 3.25% return, not to mention that the earlier you stock away your money, the greater the impact of compounding.  People always talk about the "enormous amount of interest" you pay on a house over the course of a 30 year loan, but most people don't live in their houses for 30 years, most sell way before that time is up, and even if you DID stay in your house that long, interest rates are so low right now that you can get a fixed 4%

Leverage it awesome, if you know how to manage it.

[hyiu]

"its EASY to beat a 3.25% return......"

I'm having trouble with this easy part....

actually, if you can manage your money at about 5% annually, you are already better than MOST fund managers...

[JeepMonkey]

Im on the Dave Ramsey plan, pay cash! So far, Im debt free except the house and if we stay on the plan, it will be paid off in the next 6 months.

Good for you.  I am pretty much at the same point.  Living debt free can not be measured, it is such a great thing/feeling.

[Samstag]

Why pay cash when the banks are willing to pay you to use their card?

Mostly because cash is a relatively zero risk proposition.  You're not running up a balance to be paid at the end of the month.  The risk of running that up and something odd happening so you can't pay it off within the cycle does exist.

That doesn't make sense.  If I buy the same amount of stuff on credit as you buy with cash, that "odd happening" that keeps me from paying off the entire balance would be a bigger problem for you, since your cash is already spent.  I would have the option of paying a month of interest while still covering that "odd happening".  You'll need to borrow the money and you may not have the luxury of finding a reasonable rate on short notice.

But I don't operate without emergency reserves (as you shouldn't whether you pay in credit or cash), so it's all the same to me.

[Gray_Area]

Yeah, being debt free is definitely one of the perks of not going to college for sure.

Not necessarily. Some people have parents who pay for it. Others get grants or use the military, etc.

[Fordman]

Why are you paying off your house?  My house is financed at like 5%, but I get a tax break for the interest I pay on it

Wow, so you'd rather pay a bank/mortgage company $20,000 a year for a $10,000 tax deduction? Seems like your $10,000 in the hole! No Thanks! I'll take the paid for house.

Let me see, paid for house means no chance of foreclosure, if sold, all the money goes to me (and taxes if I dont buy another house within a year), lower insurance rates and the house is MINE!

Fordman

[Donkbaca]

Ugh... I HATE it when people don't read properly. No I don't pay interest for a tax deduction. The tax deduction lowers the effective interest rate on the loan. If you look at the return on debt, it's essentially the interest rate. If you have credit card debt, pay it off since that is a 17% interest rate and essentially you are not goin to get a 17% return on anything else, except maybe a small business, so it makes sense to pay off credit cards. UNLESS you are financing a business through it that you expect to earn a better return on, OR unless the item you are purchasing brings some greater non economic satisfaction that hydroids it's overall cost to you.

Paying off your house makes little economic sense, the effective the effective rate of your loan, due to the interest rates means it's easier to find a better use for that money. I dont Carr about foreclosure, it's non recourse where I live, plus I bought smar and have equity so even IF I somehow couldn't pay
my mortgage, I could sell my house and pocket some cash.  Who cares if you get foreclosed on? It just means you have to move, and rents are really cheap now anyway.

So you are saying that you are going to pay off your house, guaranteeing yourself a net 3% return, when instead you could easily invest that money in an index fun and earn 5-7%.  You really think this is good money advice?

[ChadTower]

Maybe the psychological relief of paying off a house is better than the extra 2% you could make in an index fund?

Pretty much.  Your primary residence is not an investment.  It's a home.  It can't be viewed as equivalent to an investment fund or other real estate.  Your lifestyle is dictated in so many ways by the location, style, and size of your home that it has to be as much psychological as economic.  2% in either direction is meaningless compared to being safe and secure in your own residence.

Trust me, that "odd event" that screws up all your plans can happen at any moment.  People like to put their head in the sand and ignore their mortality but all it takes is one accident or bad news from the doctor.  Leveraging short term debt for absolute maximum return is fine so long as nothing goes wrong but a cash only lifestyle is just as good and feels better to those who are used to being on the ugly side of debt.  I have heard so many people say "well I could just sell my house and cash out" only to discover they actually can't sell their house when it comes time because the only buyers are offering 60% of value.

[ark_ader]

Be liquid and buy gold. 

[javeryh]

Why pay cash when the banks are willing to pay you to use their card?

Mostly because cash is a relatively zero risk proposition.  You're not running up a balance to be paid at the end of the month.  The risk of running that up and something odd happening so you can't pay it off within the cycle does exist.

That doesn't make sense.  If I buy the same amount of stuff on credit as you buy with cash, that "odd happening" that keeps me from paying off the entire balance would be a bigger problem for you, since your cash is already spent.  I would have the option of paying a month of interest while still covering that "odd happening".  You'll need to borrow the money and you may not have the luxury of finding a reasonable rate on short notice.

But I don't operate without emergency reserves (as you shouldn't whether you pay in credit or cash), so it's all the same to me.

I totally agree - I use my credit card to pay for EVERYTHING.  I'll buy a pack of gum at the store and use the card if I can.  I've also never ever missed a monthly payment (I only spend what I have) so interest is of zero concern to me.  Plus, I get free gifts from just using my card!  Right now I've got about $500 coming to me for the next time the family goes to Disney - it adds up!

The only debt I carry is on my house and it is unrealistic for me to think I can pay it off in less than 30 years but I don't look at it as an investment...

[ChadTower]

...or noting that the price of gold is at or near an all time high.

[Donkbaca]

At my Cantina we have liquid gold night. 

[ChadTower]

At my Cantina we have a plethora of pinatas.

[Donkbaca]

maybe he meant buy crude oil, also knows as black gold, which is a liquid, which we used to use at my Cantina for crude oil wrestling nights on Wednesdays

[danny_galaga]

I have shares in a big bank- EVERYBODY, USE CREDIT CARDS!! 

[Fordman]

Be liquid and buy gold. 

Maybe one should look at the term 'liquid' a little better. Liquid means 'CASH' not investment(s).

For those that are on the 'buy gold' kick. Take that 1oz flake of gold to the market and buy bread with it. See how far you get out the door. I dont understand the gold market when our currency is backed by our gold. if gold is worth alot, then the currency is worth alot.

Also, to those that want to keep paying a mortgage, keep doing just that, I'll pay my house off. I dont risk foreclosure if payments arnt made. Renting is the same as a mortgage payment, just for the guy owning the rental unit. Over 80% of the U.S.'s rental units are mortgage free and its all pure profits for the rental owner. As for rent being 'cheap', I dont know where you live, but as forclosures went on the rise here, the rental rates went up because of all the people losing their homes and needing a place to go.

Fordman

[Nephasth]

I know the laws regarding credit cards has changed recently, and am not sure how they work anymore.

I have a card that has a balance at 0% APR (it was a transfer).  If I currently make a purchase on that card, it will be at the normal 7.99% APR.

So, if I make a purchase (@7.99%) and still have some of the zero APR balance on there, and go to make a payment, which gets paid first?

More than likely your 0% APR is a promotional rate for so long (6 months, a year, maybe more). After the promotion is over the interest rate would go up on your balance transfer. And if it's a crappy enough credit card company, they may even prorate interest if the balance transfer wasn't paid in full by the end of the promotion. Leaving you to pay interest on ALL of the original balance transfered. As far as purchases, your payments would go towards your purchases first. The credit card company wants you to go over your promotional period of your balance transfer so they can at least make some money off of you from that "deal." I would recommend not making any purchases on that card until your balance transfer is paid off.

[HaRuMaN]

He probably also paid a balance transfer fee, and if you do the math, you "paid the interest" anyway.

No balance transfer fee, it's a credit union credit card, with good policies and good APR.

[Samstag]

I dont understand the gold market when our currency is backed by our gold.

The dollar hasn't been backed by gold in decades.  It's backed by empty promises and wishful thinking nowadays.

[Hoopz]

http://en.wikipedia.org/wiki/Fiat_money

And I believe that Nixon took the US off of the gold standard.

[Hoopz]

I dont understand the gold market when our currency is backed by our gold.

The dollar hasn't been backed by gold in decades.  It's backed by empty promises and wishful thinking nowadays.

Technically, it's back by the US Treasuries that are sold on a regular basis.  So, technically, the dollar is backed by China.  As the US has never (yet) defaulted on a Treasury, Treasuries (bills, notes, and bonds) are still considered risk free investments.

For now....   

[ChadTower]

Practically, the dollar is backed by the National Debt. 

That is a wonderful feeling. 

Historically man has always valued gold.  In the immediate aftermath of a natural disaster gold might not carry much value but it would if the situation continues any length of time.  Gold and precious jewels, for whatever reason, are always the default monetary unit in the absence of gov't.

[Samstag]

If there's a total breakdown in world currencies, I think it would make more sense to be heavily invested in ammo.

[ChadTower]

If it's that bad you may as well hide.  Anyone who has something everyone else needs is going to be outnumbered to the point where every shot you take is going to be returned ten times.  Hide with your supplies and wait for the first wave of people to knock off.  People on meds they can't live without, people who didn't save anything and kill each other over anything visible, and people without any practical skills will all be gone quickly.

[Mikezilla]

If it's that bad you may as well hide.  Anyone who has something everyone else needs is going to be outnumbered to the point where every shot you take is going to be returned ten times.  Hide with your supplies and wait for the first wave of people to knock off.  People on meds they can't live without, people who didn't save anything and kill each other over anything visible, and people without any practical skills will all be gone quickly.

Thats a very survivalist approach. I hope that doesnt happen in my life time. Then again, being here for the steady decline would be just as bad. Would you rather be taken out by the nukes, or live to fight the machines?

[ChadTower]

Thats a very survivalist approach. I hope that doesnt happen in my life time. Then again, being here for the steady decline would be just as bad. Would you rather be taken out by the nukes, or live to fight the machines?

It's starting to look more like cyclic climate change is going to be what does modern society in.  Maybe it has already started.  Move away from the coast!

[HaRuMaN]

Thats a very survivalist approach. I hope that doesnt happen in my life time. Then again, being here for the steady decline would be just as bad. Would you rather be taken out by the nukes, or live to fight the machines?

It's starting to look more like cyclic climate change is going to be what does modern society in.  Maybe it has already started.  Move away from the coast!

How did a discussion on credit cards get here?  lol...   

[AtomSmasher]

If it's that bad you may as well hide.  Anyone who has something everyone else needs is going to be outnumbered to the point where every shot you take is going to be returned ten times.  Hide with your supplies and wait for the first wave of people to knock off.  People on meds they can't live without, people who didn't save anything and kill each other over anything visible, and people without any practical skills will all be gone quickly.

My boss is well prepared for when it all goes to hell and he says I'm welcome to stay at his house if I'm able to survive the trip to it.  He says he has more ammo then he could possibly ever shoot in his lifetime, but has that much because he expects all his friends to fall back to his place and is making sure theres plenty of ammo for everyone.  I'm not expecting things to get that bad in my lifetime, but at least now I have a destination to run to in case it does 

[Mikezilla]

Thats a very survivalist approach. I hope that doesnt happen in my life time. Then again, being here for the steady decline would be just as bad. Would you rather be taken out by the nukes, or live to fight the machines?

It's starting to look more like cyclic climate change is going to be what does modern society in.  Maybe it has already started.  Move away from the coast!

NOOOOOO!!! I live in San Diego!!! 

[HaRuMaN]

If it's that bad you may as well hide.  Anyone who has something everyone else needs is going to be outnumbered to the point where every shot you take is going to be returned ten times.  Hide with your supplies and wait for the first wave of people to knock off.  People on meds they can't live without, people who didn't save anything and kill each other over anything visible, and people without any practical skills will all be gone quickly.

My boss is well prepared for when it all goes to hell and he says I'm welcome to stay at his house if I'm able to survive the trip to it.  He says he has more ammo then he could possibly ever shoot in his lifetime, but has that much because he expects all his friends to fall back to his place and is making sure theres plenty of ammo for everyone.  I'm not expecting things to get that bad in my lifetime, but at least now I have a destination to run to in case it does 

This sounds like my dad's house.  I know if it ever hits the fan, that's where I'm going, lol...

[ChadTower]

Definitely not place in MA... around here they'd consider you a terrorist even if it was all licensed and accounted for.

"Nobody could possibly have a productive use for that much weaponry.  Thus we should seize it from them."