Irvine Housing Blog

This is a very important subject.  The “kids” down at ASU have the latest and greatest in everything.  You see them on the bus and walking down the street playing with their expensive phones and jamming on their brand new iPods.  And of course, I know exactly how all of this stuff is being paid for. 

I’ve been there like you - had about 10K-15K in credit card debt by the time I was out of college.  By the time I realized how badly I was being screwed, I could barely make the interest payments off of what I was earning.  It took serious effort and budgeting, time, and some 0% balance transer gaming every year for about 3 years before I was finally able to claw myself out.

I earn more now than I did back then, but my spending has decreased enormously.  Learned to live below my means and I don’t buy gadgets or new things all the time.

Have a couple of credit cards now, but only use them for vehicle repairs, etc and always have them paid off before interest accrues.  They try to send me those cash advance checks every few months which go right into the shredder (Nice try).

I hate credit card companies with a passion.  From their moving range payment dates to their B.S fees to how they jack up your interest rates for no reason.

Those days are over for me.  Money goes to the bank now and I let them pay me interest for a change (although the interest they pay right now is pathetically low).

I would be just as happy as you to see these sharks out of business and we start teaching people to live within their means instead of how to live above their means.

The stick figures reminded me of a hilarious piece that I came across months ago that described the whole financial crisis in an amazingly simple way.  It’s called the The Subprime Primer

http://www.suburbanhousehunters.com/about/mortgage-crisis/

I’ll cop to that as well; couple years out of college, ~$7000 in credit card debt, three years of discipline to pay it all off. In the 20+ years since, I’ve not been able to pay the full balance only a dozen times or so.

I know credit cards entice many to spend beyond their means. Even more interesting I come across many people, clients at my financial planning firm, that get themselves into card credit debt even though they have savings of 1/2 a million to 1 million dollars to pay for their stuff in cash. Go figure?? I can’t wrap my brain around why someone would pay 20% interest on $10,000 when they have access to $500,000. But, we actually see this type of behavior often. My guess is the credit card debt is likely from a purchase the client felt too guilty about buying to draw the money from their retirement savings to pay for it.

On the flip side, I love my credit cards! I use them responsibly and milk the companies that issue me the cards for all their worth. Sure, I know credit cards make all goods and services more expensive because of the fees the credit card company charges merchants. But, unless the industry goes away as a whole, it is much wiser to make purchase with your card than cash for a number of reasons (of course given you pay your balance off each month.

I’ll share with you a few times my credit cards saved me a ton of money:

1. While in Rome, Italy we had $5,000 worth of stuff stolen off the luggage rack of a train. Lucky almost everything I lost has been purchased on my credit card. I would not have been able to recoup my losses from my insurance company without that documentation.

2.) My laptop recently broke after 1.5 years of ownership. My manufactures warranty was for 1 year. I thought I was going to have to fork out another $1500 to get a new laptop until I learned my credit card company would buy me a new one. They double all warranties of purchases made on their card.

3.) We like to do a lot of our shopping online. There have been a number of times we have purchased faulty products and the merchants would not take them back. Every time this happened,  my credit card company refunded the purchase without hassle and went after the merchant themselves.

4.) We have two credit cards. One that gives us cash back into our savings account and the other that gives us free hotel stays. Between the two we are able to go on one vacation per year fully paid for by the credit cards.

I would also like the note that I believe there is a deeper issue behind the credit card over spending. Most over spend to fill a void elsewhere. I don’t think it is morally right for companies to capitalize on these deeper issues we have as a society. But, I’m skeptical whether people would discover the true root of their problems in the absence of a vehicle to overspend like credit cards. They would probably just find a new vehicle to mask their real problems rather than deal with the core reason of the void.

I would also like share my personal method to avoid credit card overspending.
Outside of our fixed expenses: rent, utilities, child care, insurance, we budget ourselves a fixed amount of money to spend each month for everything else.  Our discretionary monthly allowance does not include big ticket items like big vacations or buying new furniture, etc.  But it does include unexpected expenses like buying new glasses so we try to never spend 100% of our allotted amount each month. About 70% of expenditures go to stuff we need to buy like food and gas, 20% is for pleasure and 10% for the unexpected.  If we want to spend more on a big ticket items we have a discussion about how much we are willing to take out of savings to pay for it (I find it is harder to see your savings account go down in value for a big vacation than to pay for it out of wages which also curbs overspending). We put almost everything on credit cards but keep track of the purchase in excel which subtracts each purchase from the monthly budget (This too helps curb overspending because it is hard to watch the amount dwindle.)
I tell you this can be tedious at first but after awhile it is addicting because of the amount of wealth you will amass.  My husband and I are quite young and have a six figure savings and zero debt.

I don’t understand how people spend money that they don’t have.  I have never been that way.  I’m 27 and have never been in any credit card debt.  When I was a student I just barely spent any money and had a job the whole time.  Now-a-days I put about $2000 a month on my AMEX and just pay it off twice per month and I get about $800 cash back for buying shit i’m going to buy anyways.  I blame my frugal parents.

Our situation is similar to most of the posters who manage their cards wisely. We get offers all the time but they are shredded as soon as they are received. We have four cards, but two are never used. We don’t even have the physical cards anymore since those are shredded upon being activated.
We, in 25 years of marriage, have paid one interest charge on our credit cards. I track our spending and use our cards to make us money like McDonna1980 does. It does take discipline which most people who are fresh out of college don’t have.
We have instilled that fiscal discipline in our college aged daughter to the point where she does not want a credit card. She prefers to pay her debts up front and off immediately.
Her six figure savings account, courtesy of a deceased relative, has only increase since she received it. She over spent one semester and was horrified to see the balance on her money decrease that she ceased all spending and is now bordering on miserliness!

From the blurb it looks like a must read book for anyone who owns a credit card. From the writings, it could be very well known that handling a credit card is not that hard and that cool. Handle with care!!