[Winstonm]

Quote

I like being sociable, and fun, and adventurous. But the only way I can afford to do things is by putting them on a credit card etc.

I hate to be the bearer of bad news, but being forced to delay payment and live on credit card debt means that you cannot afford your lifestyle.

[Trinidad]

Winstonm, on Jul 28 2009, 06:56 AM, said:

Quote

I like being sociable, and fun, and adventurous. But the only way I can afford to do things is by putting them on a credit card etc.

I hate to be the bearer of bad news, but being forced to delay payment and live on credit card debt means that you cannot afford your lifestyle.

I also like being sociable, and fun and adventurous. I fail to see why this has to cost any money.

And keep in mind that creating a credit card debt is where it goes wrong. It is not a problem to own a home that is worth less than what you paid for it. Right now, a lot of people own a home that is worth less than what they paid for it. The problem is there when you have to sell a house that is worth less than what you paid for it. And that is a BIG problem. So you should do everything you can to make sure that you don't have to sell. Creating a credit card debt is a sure way to force yourself to sell the house. And on that day you will lose an enormous amount of money.

Thus, stay away from your credit card and you can wait until the crisis is over. If that means that you won't be sociable, fun and adventurous for a while, so be it. If it means that you will eat "pasta without" for a while, so be it.

The point is that there will be an end to the crisis. The question is where you want to be then. Do you want to own a home that is worth more than what you paid for it, enjoy the economic prosperity and charge your fun and adventures on your credit card? Or do you want to see someone else owning that house while you have a debt hanging around your neck that is so big that even economic prosperity won't pay for it? Right now, you are making the choice for that time.

Rik

[Gerben42]

Quote

This must be a huge cultural difference. In the USA even young kids buy stuff on credit.

I guess so. Sounds very irresponsible to me to allow kids without a regular income to buy things on credit.
I have a college credit, but it's only 80 Euros a month and if I lose my job I don't have to pay until I find a new job. Otherwise, the only reason I own a two credit cards is because I can withdraw money for free everywhere with my personal one (and for online shopping sometimes when they require a credit card), and one is a company credit card for, well, business stuff like rental cars, hotels, etc. on business trips.

If I see an offer for something on credit I always ask myself if I cannot get it cheaper when paying for it directly. After all, when there's credit, there usually is a catch. And 0% financing means something as well... Someone is paying for it, and it's usually... the customer (i.e. me).

[mike777]

Gerben42, on Jul 29 2009, 05:11 PM, said:

Quote

This must be a huge cultural difference. In the USA even young kids buy stuff on credit.

I guess so. Sounds very irresponsible to me to allow kids without a regular income to buy things on credit.
I have a college credit, but it's only 80 Euros a month and if I lose my job I don't have to pay until I find a new job. Otherwise, the only reason I own a two credit cards is because I can withdraw money for free everywhere with my personal one (and for online shopping sometimes when they require a credit card), and one is a company credit card for, well, business stuff like rental cars, hotels, etc. on business trips.

If I see an offer for something on credit I always ask myself if I cannot get it cheaper when paying for it directly. After all, when there's credit, there usually is a catch. And 0% financing means something as well... Someone is paying for it, and it's usually... the customer (i.e. me).

Ahhh so you use alot of credit not close to zero, thought so. Revolving credit is credit....


"The first thing I ever bought on credit was my car. The 2nd thing will probably be a house. And the 3rd thing... dunno."

Funny enough just think if our schools, local city or our company job never used credit. In fact they use it literally every year and very very often! It is the blood that courses through their veins, CREDIT!

[Trinidad]

The point that Gerben is making is that he uses his credit card as a convenient payment method, not as a credit. He pays 0 interest on his credit card since the bill is paid during the grace period.

And yes, there is a big cultural difference between the USA and Europe. The general picture is that Americans buy on credit, Europeans save first and buy then. This is not only true for consumers, but also for organizations (schools, bridge clubs, etc.) and small businesses.

Rik

[mike777]

I think posters confuse what the word credit means.


If you buy something today and pay for it in 20 or 30 days that is called credit.


If you want to say the USA pays too much in interest compared to your culture ok.....

If you want to say the USA buys almost everything on credit,not cash, ok......

In general the USA buys....more meat, bigger houses, bigger cars...etc......almost all on credit...


Heck they buy computers and bbo, and cell phones...allmost all with credit.......


In general Americans buy first and save.....well except for today....almost never...

[kenberg]

The use of credit cards for convenience and their use to buy things that you cannot immediately pay for is clearly different in concept, whatever the semantics. In the first instance, it reflects the manner in which merchandise is bought. We typically have a bill of two or three thousand at the end of the month. We pay it. There is no interest charged, there is in fact a rebate. More importantly, there is no accumulating debt to strangle our independence. I have more money now than I had when i was young, but I did it the same way then, just with smaller numbers. Actually I din't have a cc until I was in my thirties. If you want to say I am buying on credit I suppose the dictionary is on your side but I know people who follow the second route, buying things on credit that they cannot afford, and I can tell you the effects are very different however semantically similar the description.

One could say, I guess, that it's not my concern. I don't run up debts and I don't use crack cocaine, what business is it of mine that others do? Even looking at narrow self-interest (which I like to think we can go a little beyond) I think the recent collapse in the housing market shows that this view is mistaken. If some impulsive shopper runs himself into serious debt it's a personal tragedy. If we have a national binge of buying what cannot be paid for, it may well end up affecting us all. How to handle this is not entirely clear but I think much more needs to be done in reining in the irresponsible granting of credit. The irresponsible use of credit is harder to get at because it looks like free money.

If, as Rik says, things are different in Europe, congratulations and keep up the good work. I see the trend here as insane.

[helene_t]

In the 70's and early 80's, we payed 20% interests but inflation was 10%, and with a 60% marginal tax rate, effective interests where 20%*(1-60%)-10% = -2%, so borrowing money made you richer. Needless to say, everybody borrowed as much money they could get. This was Denmark, I think most other Europeans were slightly saner.

[Trinidad]

helene_t, on Jul 30 2009, 07:24 AM, said:

In the 70's and early 80's, we payed 20% interests but inflation was 10%, and with a 60% marginal tax rate, effective interests where 20%*(1-60%)-10% = -2%, so borrowing money made you richer. Needless to say, everybody borrowed as much money they could get. This was Denmark, I think most other Europeans were slightly saner.

The same situation holds true for The Netherlands, but only for mortgages on first homes.

Then you can have a mortgage of (say) 100 000 Euro at an interest rate of 4%. You will have to pay 4000 Euro interest per year. You can have the agreement with the bank that you will not payback any of your mortgage until the end of the term (30 years later). The you will pay back everything at once. But there is a condition: You will have to put money in a savings account to save towards paying back the mortgage after 30 years. The interest that you get on that account is the same 4%.

Effectively, this works as a conventional mortgage. But instead of paying back x Euros towards paying of your loan. You are forced to save x Euros in your savings account.

Why was this complicated construction invented? The reason is that the interest that you get on your savings account is not taxed (within limitations). But the interest that you pay on a mortgage is tax deductable (first house only). If your income is such that you pay 60% marginal income tax, you can deduct the 4000 Euro per year from your income. As a result, you need to pay 2400 Euro less in taxes per year.

In our case, we needed a mortgage for X Euros. The bank gave us a mortgage for X+Y. Y went into a fund which over 30 years will have accumulated an interest of X. After the 30 years the mortgage and fund accounts will be canceled against each other. This way, we do not even need to pay towards savings. Instead, we need to pay interest on an even higher mortgage... which means that we can deduct more from our income tax.

This is not a "scheme" that I invented. These are standard products that banks will offer you. The government sees it as a way to stimulate home ownership.

And to you Americans: Yes, you read it correctly: 60% marginal income tax. This means that if your boss gives you a raise of 100 Euro, you will get only 40 Euro in your wallet. And of course you will still need to pay sales tax (about 20%, depending on the country) when you spend the 40 Euro. This means that you would be able to buy groceries for a value of 33.33 Euro, i.e. one third of what your boss gave you. Oh and did I mention how much it costs my boss to give me a 100 Euro raise? I am not sure exactly, but it will be closer to 200 Euro than to 100 Euro.

Rik

[Trinidad]

kenberg, on Jul 30 2009, 07:15 AM, said:

If, as Rik says, things are different in Europe, congratulations and keep up the good work. I see the trend here as insane.

But in Europe, the governments are living on credit. You think that the national debt of the US is high. In Europe it is higher (as a percentage of the GDP).

The point is that in Europe, the people put money in the bank to save for a new TV, a holiday trip or a new car. Then the banks lend the money to... the government. The government then spends this money on... the people (infrastructure, social security, etc). Are you still with me?

Rik

[mike777]

I think of the analogy of the crack addict and the crack dealer.


In this case the USA is the addict and Europe and China are the dealer. I'll let you decide which is the villain in this story.

Keep in mind today we are trying to:
1) insure 50 million by borrowing money from Europe and China.
2) pay for cap and trade to stop global warming by borrowing money from Europe and China.
3) Pay for two wars by borrowing
4) Pay for trillion buck stimulus bill by borrowing
5) Pay for troops and bases in Europe, Korea and Japan by borrowing
6) etc.

[kenberg]

Trinidad, on Jul 30 2009, 08:46 AM, said:

kenberg, on Jul 30 2009, 07:15 AM, said:

If, as Rik says, things are different in Europe, congratulations and keep up the good work. I see the trend here as insane.

But in Europe, the governments are living on credit. You think that the national debt of the US is high. In Europe it is higher (as a percentage of the GDP).

The point is that in Europe, the people put money in the bank to save for a new TV, a holiday trip or a new car. Then the banks lend the money to... the government. The government then spends this money on... the people (infrastructure, social security, etc). Are you still with me?

Rik

I'm working on it. Triple squeezes are easier. Thinking through the spending styles of European governents is outside of my job description.

[1eyedjack]

A possible solution to the OP might be to charge interest for overdue sums. Might require a change in the constitution of the organisation but I would be surprised. Provided that the interest is automatically charged without favour then it may help with the underlying problem. And I am not suggesting that it is the only solution.

It could have a detrimental effect of sorts: making interest charges official lends acceptability to late payment. There may be other regulatory matters to consider.

Possibly additional (automatic) financial penalties if the debt goes over a certain age.

How about offering a discount to those who pay by standing order or direct debit(or charging a premium to those who do not)? This sort of arrangement is particularly well suited to regular annual amounts.

[DrTodd13]

We already charge interest for overdue amounts and assign a $50 late fee every month that there is an unpaid balance.

[Trinidad]

Is there a possibility that these debtors are just careless/busy?

By this I mean that they can financially afford to pay late. Financial incentives or penalties don't have much of an impact to people who have enough money. If they are busy and want to spend time with friends and family, paying bills on time may not be their highest priority.

If that is the case, then some form of automated payment will do the trick.

Rik

[kenberg]

The forgetfulness explanation is particularly likely if you have a bunch of mathematicians living there. Several years ago my wife insisted I get direct deposit after she discovered a paycheck in my glove compartment that had been there for so long it had to be re-issued.

With time and tact you might be able to discover who is forgetful, who is a deadbeat. Although as a first guess, the forgetful are occasionally late, the deadbeats are in perpetual arrears.

Being treasurer is a truly thankless job and it seems to me your fellow residents owe you a little effort to ease your task.

[helene_t]

Yeah, I often get fines for paying my bills too late because they end up underneath my washing pile or something. Sorta silly since I always have plenty of money on my check account.

My first boss once ordered a cup of coffee in the company cantine. The clerk passed him a small bottle of milk for the coffee while naming the amount he had to pay. Then he put the coins in the coffee while puring the milk in the coin tray. I bet he often forgot to pay his bills, too.