I recently asked a few of my personal finance bloggers to fill out a “Debt Profile” questionnaire. Below, I have organized the pf bloggers into groups, according to their responses to the “Debt Profile” questionnaire. (The questionaire consisted of VERY generalized questions about credit card use and borrowing habits. Each blogger included in the groups below is invited to write a post, clarifying their ideas about credit card use and borrowing money!) “Thanks!” to all of the pf bloggers who participated.
Group 1: The Rate-Conscience Borrowers
Personal Finance Bloggers who will borrow money to make major purchases, buy a home, purchase an automobile, or pay for college. Many in this group also use credit cards. They may or may not pay interest on their credit card purchases. Basically, they will borrow money if they can borrow it at a rate that is favorable.
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Group 2: The Practical Borrowers
Personal Finance Bloggers who would borrow money to pay for a house our for college. Most use credit cards but pay off balances each month. (Some borrow money at zero percent using credit card balance transfers.) Many of these bloggers try to pay cash for other major purchases. These bloggers will use a credit card for day to day purchase, but they do not pay interest on their credit card purchases.
Blueprint For Financial Prosperity
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Group 3: The Housing Borrowers
Personal Finance Bloggers who would borrow money to purchase a home. A few of these bloggers might also borrow money to make another major purchase, but most would like to pay cash for all purchases. These bloggers may use a credit card, but they pay balances in full. Most use credit cards to earn cash back and bonuses.
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Group 4: The Non-Borrowers
Personal Finance Bloggers who do not borrow money and do not use credit cards. These bloggers save money and pay cash for purchases. Many of these bloggers also hope to purchase (or perhaps have purchased) a home with cash. These bloggers may or may not have credit card accounts, but they do not use their credit cards.
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I will have much more to say about these results at a later date. If you are a personal finance blogger and you would like to be added to a group, click the contact tab at the top of the page and mention “Debt Profile” in your message. If you are a pf blogger and you write a post about my findings, please let me know. Again, thanks to all who participated!
Very interesting. I think I rather belong to group 2 since I never had to pay interest on a credit card yet.
The Practical Borrowers rule!
Thanks for the feedback. I’ve moved a couple of people around! Check it out…
NCN
I am good where I am right now. If at all you make a category of people who live almost exclusively on credit cards..I would probably belong there.
Except rent and laundry all our budgeted expenses are through credit cards.
I know you will try hard and convince me that it’s not good..but that’s how it is.
I’m a practical borrow can you add me. No interest on CC either. I am a fan of CC, but only in a limited fashion.
After I read you group summary, I felt like I am a bit of all the first three: I borrow money to purchase cars and house (group 1); and I use credit card to pay almost every purchase, but I don’t have credit card debt other than 0% BT (group 2); and I pay off all the credit card balance in full every month (group 3)
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I agree with Sun, that it is hard to group people into anyone group. I have had no credit card debt (even balance transfer) and one auto loan in my life. The auto loan was to preserve my emergency fund during a shaky time in my career (which I paid off early when things settled down).
I just see debt as a possible tool for financial planning even though I hardly use it other than a mortgage payment. And looking at my wife who has had debt to get through years of schooling, I am glad she did it because it was a wise investment in the long-term.
So, I am more of Group 3, yet know that on certain occasions it may be wise to be in another group for a short period of time with a plan to pay it off quickly.
I’m probably a practical borrower too as I have never left a balance on a credit card that was not 0% before, although I will keep my mortgage and student loans as long as humanly possible because I think the rates are favorable. I sort of just wrote a similar post on my thoughts on debt – see trackback above
I gave up all credit for good in 2001. I sold my mortgaged home and with the equity built another home without a mortgage. I was determined to never borrow money ever again. Doing so, afforded me to save thousands of dollars a month! It was a sacrifice, but I made it! My checking account is tied to a MasterCard. It looks like a credit card, works like a credit card only it’s really a debit card. I can buy airline tix, rent cars, yada, yada, yada. BUT if there is no money to back up the purchase, I don’t buy. This system makes you think. I took my daughter to Paris for a week for only $1800 complete! In less than a month, this family of four flies off for 2 weeks in Italy. We will be staying at a B&B, one room with 4 beds and breakfast for only 120 euro a night! That’s about $40 USA each.
When you use only cash, when you do only what you can afford, you become extremely creative. You figure out what you want in life, and then you work towards that goal. Period.
My 2 children (aged 25+) have one credit card each with a $600 limit. I constantly query them about credit usage. My youngest just saved enough money to pay off over $15,000 in student loans (she got a Xmas bonus of $8500, $4500 after taxes).
You are fooling yourself by thinking the use of credit cards gives you points, regardless if you pay off the balance. Would an alcoholic carry a bottle of bourbon in their pocket to earn points to buy an airline ticket? That’s how ridiculous credit cards are.
I stopped working at the age of 54. I can now live off the interest of the money I saved. My husband reduced his workweek to only 4 days. We bought a used 22 ft Catalina sailboat 2 yrs ago and every spring we laugh all the way to the bank.
Stop fooling yourself. Credit is an evil thing.
Cindee,
I don’t think that your alcoholic example is at all relevant. First, it misses out on any kind of similar example in terms of the reward for carrying bourbon; using a credit card for points for an airline ticket can work (whether it is a good idea or not), but carrying bourbon in your pocket will never get you an airline ticket (unless you happen to offer it to some random person who in exchange gives you those tickets – see, now there’s an example!)
Second, an alcoholic is somebody who has had trouble dealing with their drinking habits in the past. I use credit cards for my daily purchases and pay my balances off every month. Generally speaking, I have done that my entire life and have never paid any credit card interest (although I have paid a balance transfer fee before); I would hardly categorize myself in the same group as an alcoholic.
How can you compare me to an alcoholic? An alcoholic at one point in their life drank enough liqour to have a detrimintal impact upon their health, their work, their relationships, and/or their community. I earn (a small amount) of interest on the money that I do not have give up until the end of the month for that month’s purchases, and get my insurance bill reduced by many times the extra interest money that I am making, and have at times gotten cash and/or gift certificates back after having made those purchases. I treat my credit card like a debit card and never spend any money on it that I can not immiediately cover that day if I had to; in fact, I have a purchase that I need to make right now for business reasons that I am holding off until my next paycheck despite (a) having enough money physically in my bank balance right now (but not having a high enough balance once you consider a future credit card payment and a future mortgage payment that has already accounted for some of those funds), (b) definately having enough money to cover it once my next paycheck hits the account, which will be before any other funds are scheduled to be deducted, (c) not having to actually fund the purchase for at least 3 weeks, and (d) having more than enough money in my various savings accounts that could be transferred within a few business days into the account that would pay the bill.
I don’t see that as a bad thing. It is all about your point of view and how you approach something. I don’t spend more money than I have, I do have a savings plan that I not only have no trouble meeting (despite buying a house, getting married, and then going immiediately onto one income while the wife goes back to school), and I do not justify any money that I spend with “I won’t have to pay this until later” types of thinking. If I would not purchase something for cash, then I won’t purchase it with a credit card (unless the reason I won’t purchase for cash is because I want to have the extra warranty protection or some other perk of using the card).
Thanks for all of the comments… keep them coming..
But, I would note, I posted these profiles so that we could see that there are MULTIPLE ways to deal with credit and debt. I did NOT make any value judgments, because there are none to be made. People get filthy rich by borrowing money AND people get filthy rich by NOT borrowing money. Personal preference plays a huge role in all personal finance decisions. Personally, I do NOT borrow money, because I don’t like the idea of paying interest. Others will borrow money b/c they don’t mind paying interest if they feel that they can turn around and use the money to bless their lives. It’s personal preference. I’ll have much more to say in a future post.
If you don’t think that credit card usuage is addictive, like drugs and alcohol, then perform this experiment: stop using a credit card for 2 months. Then get back to me and tell me what you have learned about yourself? If you use a credit card like a debit card why are you using a credit card at all and paying those fees? Airline points earned from credit cards can only be used at off peak times (blackout dates). Who really vacations during off peak times? Airline tix are so competitive. Why use points when you can fly to Orlando on Jet Blue for only $69?????
You may use credit cards during the month thinking that at the end of the month you will pay your balance in full. What happens if god-forbid, you get hurt, lose your job, get ill? Think it can’t happen to you? We are all getting older. Trust me, it can happen.
Try doing without your credit cards for 2 months. You will be shocked at how addicted you really are. We all are (or were). That’s what the banks are counting on.
PS: You can link your Visa/Mastercard Check card to a rewards program, just like a credit card and earn points. You just have to sign up for the program. I don’t. I make my own rewards.
Cindee said:
Who really vacations during off peak times?
Answer: I do. I won’t vacation at any other time. It is not financially responsible (for me) to pay extra for airline tickets, hotels and other things where the rate is jacked up during peak seasons. My last “peak time” vacation was……uh…I can’t remember!
As for airline tickets…can you please find me 4 tickets from CMH to MCO for May 4-20 that are less than $250 and do not require 8 hour layovers? I’d appreciate your help! So far we can’t find anything close to what we want for less than $288 each!
Thanks for the challenge. I only travel at off peak times but most people must travel with children and follow a school schedule, thus peak time.
The first part about finding bargains is that you have to be flexible. So, I would assume that may 4th to may 20, is not carved in stone. You can get tickets, round trip for $183 a person, on Continental Airlines.
To be honest, I only checked one airline but let me assure you, bargains can be found. I did the search from Columbus Ohio to Orlando on the dates you specified but I also checked off the 2 choices of: finding a closer airport and fexible dates. I don’t know where you live but if you leave from Dayton Ohio, the plane stops in Cleaveland, Ohio (a 38 minute layover) and then flies non-stop to Orlando. You didn’t specify what time of day, so I chose the flight at 6:05AM on May 4. There is also another one at 5:05 PM (flt#2230 from Dayton)
If you would come back on May17, not only would you save on airfare by coming back early but also on hotel rooms, car rental and food etc.
I don’t know why you are going to Orlando, but I assume you have children. Trust me, a few days in DisneyWorld is all you need. We went to Orlando every February while my kids were young.
OK: so here is the itinery:
Depart 5/4/2007 @6:05 AM from Dayton on flt#2514, arrive cleveland@6.57AM, depart Cleveland @7.35AM, flt#671 and arrive in orlando at 9:58AM. You have the whole day in front of you. Depart Orlando 5/17 @10:55am on flt#1070, arrive Cleveland@1:21PM, have a 3 hr stop over (you can stop over for less time but the cost jumps to $218 plus tax) Depart Cleveland @4:50PM on flt#2421 and arrive in Dayton Ohio at 5:43PM. This ticket is $183 plus tax equals $223 per person, well below your $250 request.
Just for the record, we are a family of four going to Italy at the end of March. Off peak season for sure. If we left from the New York City airports, we were looking at $1000+ for airfare. Instead, we are leaving from Newark, New Jersey airport (yes it’s an extra hour we must drive) for only $624 a person. That’s a savings of approx $376 per person, or $1504 for the whole trip. We’ll drive the extra hour.
Good luck. Let us know how it all turns out. Also, I always look at the travel section of the NY Times (www.nytimes.com). Liberty Travel always has a weekly deal. That’s how I was able to go to Paris for only $576 per person. My husband and younger daughter didn’t want to go so I went with my older daughter for a week. With dinners, museums and some galleries, I only spent a little over $1800 total for the week. My daughter said it was the ‘cheapest’ vacation we ever went on. No souviners, no purchases (too expensive) but I did buy the guide from the Lourve and a red scarf from a street vendor in front of Notre Dame.
Bon chance and Buona fortuna! (good luck)
Thanks for the flight info. Problem is, no, we cannot vary our plans for the trip home. And secondly, for a savings of less than $20, I’ll take the direct flight for $250. My goodness. Leave Orlando at 10:55 and not get to Dayton until 5:43? It’s a 2 hour direct flight. My time, and sanity, are worth the few extra bucks.
Thanks for doing the research!
Karen
cindee, you wrote “If you use a credit card like a debit card why are you using a credit card at all and paying those fees?”
What fees are you talking about? I have serveral reward cards, one with 5% cash back on gas, groceries, and drug stores; another that gives 5% cash back at office supply stores and utilties (very nice for paying electricity, cell phone, etc.) and a third that gives 2% cash bonus to my Fidelity 529 account. I use the last one for everything that doesn’t apply to the higher rewards on the first two cards.
None of theses cards has any annual fee and I pay in full every month. I’ve never paid any interest on credit cards.
I can see that some people could be addicted to spending just like some people can become alcoholics. You assume everyone is a “spendaholic” which simply isn’t true. I could use a debit card, but I get much better rewards with credit cards. Also I have a great credit score which means I pay less on home and auto insurance too.
Cindee, my parents have used CC all their lives. They taught me that using CC can be a tool. I’ve never paid CC interest because of what they taught me. CC are not to be used to buy thing that you cannot afford. CC are like cash, but they have extra protection for theft, and they give you back rewards.
My parents own two homes, three cars, and can retire at 55 with a pension of $4k/month for life for my mom and paid medical for life for them both. They also have wel over $1 million in the bank, and their homes are I’d say conservatively worth about $1.5 milllion. They had 4 children and supported my mom’s parents who live in the second home rent free. So think CC hurt them?
CC are a neutral tool, which when used improperly hurt someone. It can also be used correctly.
Its interesting how everyone else uses credit. I’m probably in group 2. I use a credit card but pay off in full.
Also, just as not everyone who drinks alcohol is an alcoholic, so not everyone who uses credit is a spendaholic. In fact, if I gave up alcohol for a month, I’d probably notice that I had a very boring time in the pub with drunk friends. If I gave up credit cards, I wouldn’t notice any difference as I treat my credit card like a debit card. Just my 0.02.
I would like to address several points everyone on this thread has brought up. Some clarifications are in order.
Using credit cards to make daily purchases and paying said charges at the end of the month, in full, is still a 28-30 day loan.
Credit card companies DO NOT give you these cards for free. Even if you pay your balance in full at the end of the month, there is still an annual fee they charge you. Otherwise, these companies would go out of business.
Consoling yourself and justifying to yourself that your usage of credit cards enables you to earn points/rewards is ‘fooling yourself’ into thinking credit card usage is a good thing. That’s what the credit card companies are counting on. They have done extensive research and marketing to trap their users into this false sense of security. LOL!
Credit cards are addictive. That’s what the companies are counting on. They know if you carry a credit card in your wallet, one day you are going to use it. They know that over time, you are going to mess up, miss a payment, lose a job, get sick, yada, yada, yada. Just like an alcoholic who carries a bottle of boubon in his pocket, your going to take a drink.
To “Living Almost Large’ (notice, she says ‘almost’.) whose parents own 2 homes, 3 cars, will retire at 55 w/$4K a month and 1 mill in the bank, are we to believe that your parents accomplished all of this by using credit cards? Or perhaps, did they, have they earned enough money during their lives to accomplish all of that? I would bet the farm that it’s the latter.
In my opinion, and from my 50+ years of experience, I have found credit card (any any kind of debt for that matter) to be detrimental to my financial well being.
You will achieve greater goals in life by turning in your credit cards and exchanging them for Check Visa/Mastercards, sign up for their rewards program and start living within your means. It is a painful process, takes about 3 to 5 years to accomplish, but it will awaken you to a new discovery: true financial freedom.
End of story.
“Credit card companies DO NOT give you these cards for free”
Yes, they do. In fact they’ll give you $100 to take a card. For example, google “sony credit card” not only do they give you $100 they give you 0% apr for 1 year.
Now this part will blow your mind. I took the balance transfer check that came with the new card and wrote a check to myself for $25,000 and put in an FDIC insured savings accout earning 6%. In 11 months, I’ll pay back all the money, but I’ll keep the interest earned of course, around $1000. No I can’t make a living off it, but its easy money.
“Even if you pay your balance in full at the end of the month, there is still an annual fee they charge you.”
There are many many cards that do not charge an annual fee.
“Otherwise, these companies would go out of business.”
Clearly they are not going out of business. Just as clearly you cannot handle credit cards, but don’t post false information.
Great! I would like to answer a questionnaire like this…Can you provide it for the readers?))