I only ever used prepaid CCs that you load with a fixed amount. CCs that allow you to spend more than is in the account is financial vampirism and needs to stop.
- Aristotle, Politics.
Some may be surprised to learn that this is a very old idea. Yet so much of modern life is based upon it in some way. It would be interesting to hear what Aristotle would think about a mortgage or a used car loan.
Anyway, I, and I think most people, would agree with your sentiment here. Generally speaking CC usage when you don’t already have the means or stand to gain nothing from it is a bad idea.
Debt in general has very ugly side-effects and incentives, specially when it is levered, but banning interest altogether would basically destroy modern capitalism.
>It is not too old, but it is also certainly wrong
Even according to Marx money is only supposed to be a medium of exchange, the fact that it bears interest means that money isn't a neutral medium of exchange whatsoever. What interested me most about money is the fact that this problem isn't even new, founders of religions knew about the problem thousands of years ago. If anything this means they know more about money than we do today. The idea that they are wrong can only be justified by the fact that our method of eliminating liquidity preference is superior to theirs, e.g. because we run permanent inflation to erode exponentially growing debts.
>interest a very efficient way to lend capital.
Maybe in a growing economy but interest is only efficient when it is equal to the growth rate. In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
>Banning interest is banning investment.
The good news is that neutralizing liquidity preference does not require banning it, anyone who has spent time thinking about liquidity preference knows that banning it is pointless. The obvious solution to neutralizing liquidity preference is to just eliminate the lower bound on interest rates. If liquidity preference is 3% and there is a zero lower bound of 0% you get positive interest even if the economy isn't growing which is highly inefficient and leads to artificial scarcity and underemployment or even unemployment if people pile up jobs onto fewer and fewer people. If the interest rate on cash were -3% or even -6% then the lowest possible interest rate would be 0% or -3% after accounting for liquidity preference.
This is just a floor, just because the interest floor is negative doesn't mean the interest savers get on their deposits must be negative, it just means they have to deposit their money in a less liquid form.
>but banning interest altogether would basically destroy modern capitalism.
Eliminating liquidity preference in the way I argued above would effectively result in the end of modern capitalism and would replace it with something better.
Interest existed for 100's of years before the fiat model.
Interest is not paid on money, its paid on time of allocated capital. If you dont have money you can still collect interest in the form of goods - I give you 100 seeds, you return 1000 seeds to me next year. Without interest there is certainly not lending, so the owner has to invest themselves or consume the capital.
It would definitely be better that investment were not issued as debt and were always equity to prevent many ugly side-effects, but thats not a configuration applicable to everything, so this is what you get.
> In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
This is mixing macro-economics with micro-economics. Even in a contraction economy you have growing businesses, which mean there is demand for capital for production itself. 0% interest rate means there is no demand for capital, which is not true even in North Korea.
Interest is just a price, like any other good in the economy.
Since then I keep a close eye on my credit rating, reviewing it monthly and ensuring what I'm doing is improving it.
I strongly dislike it, but I can't risk limiting my family because I disagree with how people in power think things should work. Until this drops out of fashion, I'm going to ensure my score is excellent.
I had never felt like more of an idiot as I spoke to the mortgage advisor and discovered my money management had completely knee capped my family's ability to buy a home when it was wise to do so. We lost out significantly as a result, and it still burns to think how much easier life would have been if I just sucked it up and played the game all along.
That was stupid, not to mention unfair to my family. Even if you’re more wealthy than average, getting by without any credit at all is extremely impractical.
[1] okay not the best phrasing but you get the idea
So that's a difference.
I literally had zero credit card companies calling me and telling me to spend more. The most I've gotten are mailers telling me to do balance transfers.
>You need to track the credit card balance relative to both your current bank balance and expected earnings, and then evaluate that every time you consider a purchase.
Keeping track of future expected earnings is only necessary if you want to maximize your spending, but if you want to use your credit card like a debit card it suffices to ensure that sum(bank balance) > sum(credit card balance).
But what a charge card does for you is kind of nice though: it converts all the random unpredictable expenses into a single, deferred, interest free lump sum payment. Also: maybe I'm boring but at the monthly level those random expenses smooth out into something more predictable to where I can pencil in average payments every month and be pretty accurate. But when I'm wrong, I have 30 days to figure it out, instead of ... instant pain.
The method you describe can work for people, and it did for me when I started grad school. But I've moved on to more complicated tracking. Now that I make 10x what I did back then, annual budget spreadsheets and double entry accounting is kind of required to optimize the tax bills I get these days.
And of course, the cash back is nice =)
Then again, it mostly comes to not in general spending more than you earn as regular daily activity.