U.S. credit card debt jumps 18.5% and hits a record $930.6B | Hacker News Reader

U.S. credit card debt jumps 18.5% and hits a record $930.6B

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152 pointsqclibre22273 comments

Credit Cards are so frightening. I remember having to hide from my Mom that I had gotten one when I was 18, because she was so scared I would ruin my life with it. Of course it's done the opposite.. I've built credit and saved lots of money in doing so, but I do get her fear.

These cards are accepted by society because they benefit those who know how to use them, but it's hard to look past the fact that so many people, if not most, are financially illiterate (because of failings of education due to lack of funding) and so many people screw themselves financially for decades if not their whole lives because of them.

Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR. Of course I wouldn't get my 3% cash back for being a responsible user of my card, but we also wouldn't be screwing people so hard on the other end. We can say "but they signed the terms!" all we want, but we all know that people agree to things that are a detriment to them and the world for short-term gain. Regulation should be there to prevent that as much as possible.

>>Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR.

What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

IIRC, they used to be capped at 18% many years ago, still high, but much more reasonable then some of the rates that are out there now; so not opposed to a cap, but it can't be so low that it kills the business altogether.

I doubt that. Visa and MasterCard make most of their money via seller transaction fees, not credit card debt payments.

If anything, we should limit seller transaction fees, as I believe the EU does.

Visa and MasterCard make most of their money that way, but they don't by and large underwrite the debt -- various banks do[0]. That's why you don't get credit card offers directly from Visa or MasterCard, you get them directly from banks. Visa and MasterCard only care that debtors default insofar as it affects the market as a whole.

[0]-American Express and Discover have somewhat different business models, and do underwrite most of the debt themselves. I don't know about foreign systems, but I'm given to understand they are mostly not credit based.

Visa and Mastercard are payment networks, not banks. They don’t own the debt at all.

Yeah isn't this because visa and mastercard are the issuers, and the banks handle taking on the debt?

The exception to this is Amex who is the issuer and lender.

Discover is also.

Discover is pretty much unheard of in Europe, amex has grown a lot in the last 10 or so years, it’s almost as common as visa/Mastercard for acceptance.

But my inference from futurama is very few outlets take discover even in the US?

I would not say very few. All big businesses or franchises accept it.

Visa/Mastercard don't lend money. Banks do.

That seems unlikely. Settling accounts instantly in that kind of system is almost impossible. Unless the money is going directly from payer to the payee there must be some slack in the system somewhere, and that means debt. I will admit though I could have an incorrect understanding of how these accounts are settled.

They're not settled instantly, but broadly, this is one of the reasons the credit card networks are a massive accomplishment; they settle deterministically enough that a commanding majority of financial institutions will trust the networks sufficiently to transact with them. Yes, this is accomplished by absolutely massive amounts of (mostly offsetting) debts carried between various parties every day of the last several decades.

I should probably write more about this subject at some point, but the GP is of course correct; the credit card networks (except for Amex) generally do not put up money at any point. Each entity in a chain about 5 links long makes simultaneous and very quick agreements about offsetting transactions between themselves, with probabilistic assurance of eventual settlement to the business being "very, very quick" and physical settlement happening in a few days to about a month later. Typically an important step is the issuing bank settling with an intermediary (not the network) who will settle with the merchant bank or payment processor who will settle with the business.

I think you misunderstood the GP: there is debt, but it's owned by banks, not by VISA and MasterCard. They just provide the payment network.

Do the banks directly transfer to one another? I'm genuinely naive on this topic. I don't even get the value add of visa at that point.

Yes, banks do net settlement with each other. They tally up all the debits and credits on both sides and then make a single transfer to settle between each other. Say Bank A owes Bank B $200, and Bank B owes Bank A $150. Bank A will send Bank B $50, as that is the net amount after subtracting 150 from 200.

https://en.m.wikipedia.org/wiki/Net_settlement

Not an expert either. As I understand it, credit card networks provide the infrastructure that lets entities settle payments: providing cards and authentication, routing payments from consumer's bank to seller's bank, handling clawbacks, etc. At world scale it's got to be a huge engineering problem.

Yes the settlement happens almost instantly even for international transactions. It’s the bank that allows the transaction or not; not the payment network.

This is not the usage of the word "settlement" which prevails in the financial industry, which tends to use it to describe the transfer of funds to give effect to a promised transaction. It is factually not the case that credit card payments generally settle instantly. It depends on many factors but typical timelines are a few days to about a month, largely dependent on which network is at play and where the business getting paid is. (For complex reasons, prevailing settlement times in some countries are long compared to most HNers expectations.)

People should only be borrowing money to spend on productive capital. If you're not investing borrowed money into something more profitable than the interest, what you're actually doing is falling into a hole. We should be helping people who are falling into holes, not exploiting them.

I have never used a credit card to borrow money. I've always just used one as a basically a more secure and convenient debit card.

Credit cards to me are just convenient payment facilitators for money I already have. If they aren't being used that way, they probably shouldn't be used at all.

Do you pay off the card the second you spend the money? Or wait until your billing statemen? Most people borrow with credit cards and in fact I pay as late as possible for the statement to arbitrage the interest difference between the 0% of the card for the first 30 days and the interest I can draw in the bank. I try to delay big purchases to the very beginning of the billing cycle as that's an extra month to earn interest before paying it.

Just put it on autopay. Once a month the whole balance gets paid off.

Does your arbitrage strategy really make enough money to make it worth it? Personally, I am not going to stress about a few extra bucks by leaving the money in a 3% HYSA for an extra week. That kind of micro-optimization is fun for some people but I just can't be bothered.

I mean it doesn't take me any more or less time to pay it one day vs the other. Why not make basically an extra free $60/yr if you're carrying aroudn $2k in balances? For the median worker that's basically an extra couple hours of wages for no difference in workload.

Yeah, that makes total sense. For me, the extra mental of thinking about when to charge something and when to pay it off just isn't worth $60/yr.

Counter-factually: If autopay didn't exist, I would gladly pay $5/mo to have all my bills paid automatically.

I’m in the same boat.

I’d love to care about $60/year, but I waste more money on under-utilized subscriptions. Not saying it’s an either-or, but if I can work to earn $60 more, I’d probably rather do that than save $60. :-)

> in fact I pay as late as possible for the statement to arbitrage the interest difference between the 0% of the card for the first 30 days and the interest I can draw in the bank. I try to delay big purchases to the very beginning of the billing cycle as that's an extra month to earn interest before paying it.

No where near enough payoff for the mental gymnastics. I just pay the bill when I first get it and it is completely off my todo list.

So are you against giving people of limited means a way to shift part of the purchase cost of a necessary replacement item into the future? As a concrete example, it seems entirely reasonable to me for someone of limited means to spend something like $2,000 on a credit card to repair a broken car so that they are able to get to their job. If you don't give people a legal means to access money like that (even if the rates are borderline usurious), I would expect them to seek out illegal methods -- and that seems worse all around for society.

Not American, but giving one of your country's credit cards to someone too poor to pay for vital car repairs is just throwing them into the street with extra steps. What that person needs is public aid that gets them out of the hole.

Politician A: I will increase aid to poorer people to get them out of the hole. I will need to increase taxes.

Politician B: I will increase access to credit to poorer people to get them out of the hole. I will not need to increase taxes.

Voters will go for B every time. See taxpayer subsidized loans for home purchases, education, small business, etc.

Are you agreeing with me? State-subsidised loans are the first example of state aid I was thinking of.

Taxpayer funded loans inevitably lack the requisite underwriting, and hence turn into subsidies to the businesses that the loans are eligible to pay, hence allowing them to increase price.

See higher education and home prices in the US.

Having most people be leveraged to the max, using their own children’s future tax payments, is great for employers who want workforces with less negotiating power.

Proper state aid would be cash, or giving people houses and education. Not chaining them with debt to pay for houses and education.

Not at 24% APR.

What about borrowing money to pay for transport to a new job? Not ‘productive capital’, but probably worth it. There are lots of cases that don’t fit into your narrow category, where credit makes sense.

That is productive capital. A car or your payment of rent for someone else's offer of transport to you is akin to say paying for a milling machine that creates widgets.

I said 'transport', not 'buying a car'. Many people take the bus or other transport to work, especially when coming off a period of joblessness.

Yeah that's why I also said transport.

But that portion of your reply didn't address the fact that a bus ticket isn't 'productive capital'.

It is.

>"Capital is a broad term that can describe anything that confers value or benefit to its owners, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual."

https://www.investopedia.com/terms/c/capital.asp

A bus ticket is something "that confers value or benefit to its owners".

That's not what capital means. The bus ticket is an everyday expense that doesn't bring you anything by itself long term, you stop owning it as soon as you use it. Otherwise food would be capital too and the word would become useless.

Thought experiment: why is a one month software license to operate a conveyor belt to move product stock considered productive capital, but not a one month license for the employee to ride to the product stock. Indeed in at least one city I lived in, the taxes were deducted from my transit pass as the state counted it as a capital expense for my employment (technically the pass was not supposed to be used for anything else, but no one is checking).

In the grim thought slavery still existed, I would say food would be considered productive capital. In modern day (from the view of the company) that value is just captured in the wage so it would be inappropriate to double account it into capital expenses (a business lunch I think would count though).

Software licenses are not considered capital; they’re expenses. This is why they’re preferred for tax reasons, as expenses are fully written off in the first year, but capital purchases are gradually depreciated.

In that situation, food would still be an expense. The capital would be the slaves. Weird example though.

There's a huge gap between regular consumer items and what you call productive capital.

For example, a land with a house is productive capital, because it insures you against rent hikes. A reliable car is productive capital, because it lets you commute to the job and insures you against switching to jobs with a worse commute.

But those things both cost so much more than you can (or should) put on a credit card, generally.

We always have a surplus of officious busybodies who love to tell others how to spend their money. I mean you're not wrong, but most people don't want to listen to personal finance advice and only learn as a consequence of making their own mistakes.

> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

What is the rate of (sorry, I don't know the correct term) how often current credit card companies get "shafted"?

aka somebody runs up a $10,000 balance or whatever and then doesn't pay it

Here is the data for credit card delinquencies from the Fed: https://fred.stlouisfed.org/series/DRCCLACBS

Is 'rate of default' the term you are looking for?

What there really needs to be is a lifetime payback cap. 20% interest would be fine if you had say a maximum payback amount of 2-3x the original amount adjusted for inflation. The companies can still make money, but it prevents a hole with no bottom.

The all could still keep growing in this case, just not at a higher rate than inflation once it hits the cap

Yes, but after the cap only the number grows, not the value.

> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

Credit cards are a single product that serve a lot of different use cases simultaneously, and credit card issuers are able to profit off of most of those through different mechanisms. Not everyone carries a balance on credit cards, including some of the most lucrative market segments[0].

Furthermore, BNPL is an example of lending money to the general public at 5% (or less, in many cases) for unsecured debt. In that case they make their money back on fees for late payments.

[0] If you'd like an overview of how credit cards make money, this post from patio11 covers the basics: https://www.bitsaboutmoney.com/archive/how-credit-cards-make...

> In that case they make their money back on fees for late payments.

Not primarily accurate; several BNPL providers don't even have a late payment fee. BNPL manufactures ~25% APR debt out of 0% consumer contribution and ~6% merchant discount (interchange) which, since BNPL payments revolve very quickly, annualizes quite healthily. The primary source of revenue to the BNPL provider was historically keeping a portion of the discount for themselves; the rest compensates the capital provider, who is usually not the BNPL itself.

https://www.bitsaboutmoney.com/archive/buy-now-pay-later/

From this comes a fairly important realization that if you don't have a second party (the business) funding the cost of credit, or if the extension of credit is for a weighted average of longer than 3 weeks, it is in fact quite difficult to provide unsecured credit to the general public at ~5%.

I think what would happen is that collateral for credit cards would become commonplace

Which has a similar effect to the cards not being available. If you're renting an apartment and riding a bus to work, what exactly are you going to put up as collateral? Organs?

If you live in Massachusetts, you might be able to soon:

https://www.technologyreview.com/2023/02/03/1067768/massachu...

I was really holding out hope this would be a story about piano playing

That's called debit card. Limit is the money in your back account.

It’s not quite the same thing. Secured credit cards exist, primarily for people with bad credit. e.g. https://www.hometrust.ca/credit-cards/secured-visa-card/

Personally, I already keep hefty minimum balances to avoid monthly fees on bank accounts that allow me to waive credit card annual fees. They could use that as credit card collateral.

That’s much worse than interest rates for the vast majority (that don’t have any assets to put up or can’t afford to actually lose them).

And much lower limits.

Less credit is not zero credit. Plenty of cards offer stupid low introductory rates and excessively large credit limits.

Smaller credit limits + lower interest rates makes it much harder for people to become unable to pay.

I took out a 7 year unsecured 25k loan last year for 1.99%.

Today it’s 4.9% after the rate increases

Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem?

> Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem?

All the credit cards I've ever had do have a variable rate like you describe, though base+5% would be pretty good. I'd expect super low rate cards like that to have limited or no rewards (which can otherwise be substantial in the US).

I'm guessing part of the reason banks dont tend to go that low is that people that carry balances as opposed to paying off their bill every month are much higher credit risks.

there would just be less credit out there.

> These cards are accepted by society because they benefit those who know how to use them, but it's hard to look past the fact that so many people, if not most, are financially illiterate (because of failings of education due to lack of funding) and so many people screw themselves financially for decades if not their whole lives because of them.

I went through the U.S. education system in 8 different states in schools in poorer areas, and even then, the education was sufficient to understand the concept of not spending money you do not have.

Set the thing to auto pay the balance every month, and do not spend more than you earn. I expect that much from the 95% of the population that has had the opportunity to learn how to read and write.

Almost everyone in the U.S. spends money they don’t have. We borrow to buy a car, a house, to go to college. When one does not live on the precipice of missing rent and whatnot it is easy to say, “ Don’t spend money you don’t have.” Such advice is as useless as it is easy to say.

The thing is, if you go into debt, you eventually reach a balance of income and expenses. (Or you declare bankruptcy.) You can’t keep going into deeper debt indefinitely. If you’d taken those same actions to equalize income and expenses before going into debt, you’d be better off.

Edit to “spending money they do not have for unnecessary purchases at huge interest rates”.

Obviously, certain circumstances can cause someone to need to use credit card debt to shelter/feed themselves and their family. I would be willing to bet the vast majority of credit card interest is not caused by essential needs.

It's not useless at all. There are countries where the average workers earn 5 times less (even PPP adjusted) than our minimum wage and they don't rack up vast amounts of credit card debt, car loans, etc.

We first need to start changing our values to be more financially conservative. Once that happens and voters start making these values apparent to politicians, they can take actions that will help reduce costs for citizens.

> We first need to start changing our values to be more financially conservative.

Think about the economy! If political leaders were wanted the elderly to sacrifice thier lives to COVID "for the economy", then the overspenders have no chance of being save from bankruptcy. The purpose of a system is what it does, and the American one moves money upwards.

There’s a huge difference between borrowing money at 5% (and this loan is collateralized) to pay for a car you commute to work in, and putting a $10,000 trip on a credit card at 24% interest and then making minimum payments. The former is a good idea, the latter is a terrible idea.

I would also argue that it's not due to a lack of funding, just misplaced priorities. Even one course on financial literacy would go a long ways.

I doubt it would make much of a difference. The kids with the wherewithal to take and pay attention to a finance course would be able to figure out "high interest debt = bad" on their own. The other kids wouldn't pay attention anyway.

Really, an hour on Google will give you all the information you could need to manage credit cards. It's not complex.

At what point is one expected to forego their basic needs (including dignity) to avoid debt?

Logically, this question must be answered with sincerity before blaming financial illiteracy.

> the education was sufficient to understand the concept of not spending money you do not have

My public schooling in a podunk county TN had no component for financial management.

Even so, you assume that such education exists in a vacuum. It does not. It runs counter to a deluge of culture and advertising that tries to induce people to go into debt the moment they are able to pass a credit check.

Yeah it did, it's called basic math.

My high school in a town-that-refused-to-admit-it-was-a-small-city had no course called "basic math". Compound interest was taught in exactly two classes: calculus and economics.

Economics was a de facto personal finance class, which was nice. It refused to admit that because "economics" looks better on a transcript than "personal finance". This meant it was a rarely taken elective for folks who wanted to look good to colleges.

Calculus was also an elective for folks who wanted to go to college, which was notoriously more difficult but more popular in spite of this. People not going to college weren't taking either one.

I believe grandparent that compound interest wasn't taught anywhere in a small public school. A lot of those schools don't even offer calculus.

I think the factor of financial literacy is overstated. I think the biggest factor is self control and addiction, mirroring a lot of other issues we see, EG obesity.

As an example, I have a friend who is really struggling with credit card debt, but they are in no way financially illiterate. They have an accounting degree and work in finance.

It is extremely sad to watch them suffer because they know exactly what's going on, but they can't control their spending habits. I think this is a more common situation than the alternative.

I agree with this. Most people that abuse credit card debt know the ins and outs of every bylaw on credit cards, they just… need the money and don’t care about their credit rating.

And much like weight gain, the propensity for buying things varies from person to person.

Some don't need much, others will always or almost always spend more than they have, but traditional financial advice will be the same for both groups.

This is real. I approach these conversations based on if the person would be open to learning the same way I avoid religious and political discussions.

It is a deeply emotional response from most people, they know what they are doing is stupid. They almost never need me to tell them.

My mom was an accountant and she looked flabbergasted when I told her her $2k/month timeshare was costing her $24k/year, sucking up almost all of her social security.

Does this not point to more of a psychological issue such as avoidance, not a financial illiteracy one?

I don't want to come off as aggressive because this is your family, but I'm guessing your mother can multiply 2 by 12.

I'm not at all disparaging accountants here but I don't see any reason why they would have superior budgeting capabilities. Accountants are generally in charge of recording the accounts and not actually setting and spending the budget no?

The person I would be shocked to be bad at this would be someone like the owner of a boring and non-expanding local business, like a tire repair shop.

Yep, most people are hyperbolic discounters. Cash Today is worth 10x more than Cash even from a month now. So, 20% APR doesn't faze them

"(because of failings of education due to lack of funding)"

I think there are other reasons for the failed education. Even with more money, I doubt they would prioritize it. Most schools offer personal finance as an elective. It should probably be part of the core curriculum. Even then, you will have students that are unintered or don't apply themselves.

The easy fix is to reign in the lending by setting low limits that only increase with good payment history and cap lifetime interest payments as an percentage of the original purchase, like 200% adjusted for inflation.

Want a credit card? Here's one with a $250 limit. Didn't pay it back? Now you'll owe $500 adjusted for inflation, and you can't get another card or more credit unless this one is paid back.

The political/legal ability to do this is more questionable.

> cap lifetime interest payments as an percentage of the original purchase, like 200% adjusted for inflation.

Is people paying more than 200% lifetime interest on credit card purchases a normal thing?

I don't know how common it is. I have heard of people making interest only payments for a long time, or taking years to pay off credit card debt. At something like a 20% rate, it's possible to pay back double the original purchase price if it's taking years to pay it off. In general it's probably fairly rare, just like the people who ruin their lives by carrying over a high balance to begin with.

Anecdote, but I was required to take an economics class in high school with the basic one being consumer economics which taught me all about personal finance.

Everyone has to avoid getting screwed until a pile of CC debt. While refusing to own one isn't my personal plan, I appreciate people like your mother. She sees the downside as >>>> the upside, and just swears off the entire thing.

Day to day, the only use of my credit card is just buying stuff online - so when my # gets stolen, my money isn't taken out of my bank account (like it would be if I used a debit).

This is the way. A Credit Card is just a Debit Card, but with rewards and better fraud protection.

We need more basic financial education in the US and probably the world.

I know people some people with thousands of dollars in credit card debt.

Currently I make about $50 a month in credit card rewards and after using them for 30 years I have never paid a penny in credit card interest. I looked at the credit card interest rate and it just seems ridiculous so I just don't buy things I can't pay off at the end of the month.

I know that most of the financial institutions purposely advertise and try to deceive people into going into debt so they can make more money from them.

I know that people run into difficult times but I see so many people buying things they don't really need with a credit card.

> We need more basic financial education in the US and probably the world.

We do, definitely. However wouldn't that also produce the same result as regulating the cards?

Ie i imagine cards are profitable for the responsible folk because they so heavily abuse the irresponsible and/or uneducated folk. If we were to educate everyone then the cards wouldn't exploit "anyone" and suddenly the card makers have no incentive to offer the profitable cash back/etc.

Now of course, we can't educate "everyone". And i'm not a fan of systems that build themselves on the back of the exploited.

Do i have the wrong framing here?

> These cards are accepted by society because they benefit those who know how to use them

No, they're accepted because the only way we can figure out how to continue economic growth is through a massive credit system. This means doubling down on a strategy of infinite growth as that is the only way such a system is sustainable.

Cheap money coupled with expanding credit is the foundation of the global economy for the last decade. You could also argue pretty easily that cheap money is just another view of expanding credit.

If we increased the cost of money and reduced the amount of consumer credit available the global economy would collapse. Ever since the GFC we've pushed off collapse only by expanding global debt.

5% on unsecured debt? Absolutely no one would offer credit cards, period. They wouldn't exist. I'm not saying a lower regulated rate couldn't work, but it would be to be considerably higher than 5%.

You get almost 5% at the moment by lending money absolutely risk free to the US government. OP is living in a fairytale if he thinks anyone would lend to random people at 5% with no collateral.

It's not risk free. It's just incredibly low risk on a short/medium timeline.

If the US defaults on its debt we have bigger problems.

Right? There are people paying higher rates than that on a mortgage, which is usually a pretty safe bet to underwrite

Which would be OK, I think. There is no reason fer credit cards to exist. Debit cards are just fine for what most people do.

The #1 feature of a CC is the fraud protection.

If my credit card gets stolen, the criminal has access to the bank's money.

If my debit card gets stolen, the criminal has access to my money.

Just don't be an idiot like me, have your credit card at the same bank that you have your bank account at.

Then have someone steal your card info, spend lots of money, and then use the vast legal resources of eBay to fight your fraud claim with piles of paperwork.

I've found the fraud protection of CC quite lacking. Bank puts up no real fight to the counterparty appeal of the charge back and then you're fucked, especially if the bank already has your assets. In my case the appeal was from some guy with literally 'pirateArrrggh' in his email address and they stated it absolutely must have been me. My bank literally laughed at me and insinuated I was a fraud for daring to claim I couldn't have been the buyer of religious and women's beauty products as a straight atheist man.

Not everyone has as much liquid capital as you do. Short term loans can help cover necessary expenses (broken AC, car, etc) for those with less means.

Taking these loans for someone without my means is even worst idea, because the interest payment will hit them more.

And I mean, broken AC is not necessary expense. It is a luxury item. A car may be necessary expense if your place don't have public transport, but at least here, poor people don't have cars.

>We can say "but they signed the terms!"

I've always hated this "caveat emptor" mentality. It just assumes the seller can't be blamed out the gate, no matter how manipulative or opaque they may have been.

See: the classic memes about fresh army recruits buying expensive cars/truck at 25% APR. There are car dealerships outside of bases that make it their sole mission to separate fresh 18 year old recruits from their money.

they're already required to clearly display the total interest over the full loan term on the contract you sign. there's no hiding the fact that 25% APR with a 72 month term means paying ~100% of the principal again in interest. I honestly don't see how it could be made more clear that this is a terrible financial decision. it's like it just doesn't occur to people that they might have to pay for things other than a car note sometime in the next six years.

>there's no hiding the fact that 25% APR with a 72 month term means paying ~100% of the principal again in interest. I honestly don't see how it could be made more clear that this is a terrible financial decision.

According to Michael Saylor, the value of the dollar halves every ~5 years.

It's still not a great financial decision but if that capital is being utilized well, it may not be so terrible for people with no access to lower apr loans.

You literally have to sign a paper which states the total cost of the loan to buy a car on credit. How could it be _less_ opaque?

Frankly I just think sleazy sales tactics/pressure are wrong. Contracts or not.

The world is a hostile place and everyone wants to drink your milkshake (including me).

Don't think there's anything that can or should be done about it. This is how it's always been and this how it will always be: it's fundamental to humanity.

> The world is a hostile place and everyone wants to drink your milkshake (including me).

This is a cynical take that frankly I find very grating and pointless. “Life’s hard nothing we can do about it.” Just hand waving it away and deciding there’s noting that can be done when there’s plenty we can do, as we have done since we first organized into groups.

>Don't think there's anything that can or should be done about it. This is how it's always been and this how it will always be: it's fundamental to humanity.

Consumer protection laws exist. Laws against murder, stealing, etc. exist. Would you agree we have fewer people taken advantage of and fewer people murdered and stolen from as as a result?

As for saying we shouldn’t do anything…that I can’t make heads or tails of. You want the world to be cutthroat? By choice?

Practically, a lot of these can be dealt with regulation, warning people in advance about known frauds and so on.

It is not true that all societies would be equally corrupt, fraudulent or dishonest. They differ due to laws differing, law enforcement differing and culture differing.

It amazes me that people's default way of dealing with something they don't like is to ban it. It's the most neanderthalic way of regulation.

Failure of financial literacy is not because eduction has a lack of funding. The subject isn't even being taught, at least not when I was in school.

Could that be because of lack of funding? I had friends in a private highschool and they were taught financial literacy, which isn't a big surprise. The rich getting richer.

> Of course I wouldn't get my 3% cash back for being a responsible user ...

My impression is that the cash back (& similar rewards) are mostly paid for by the merchants - who do not get (say) $100.00 when you pay them $100.00 with your credit card.

Exactly. The interest covers the cost of capital, delinquencies, administration, but it's the merchant fees that are paying the rewards.

Before Dodd-Frank and the regulation of debit card interchange fees, many debit cards were also offering lucrative rewards, despite there being no interest at all. With debit cards now limited to $0.20 + 0.05%, those debit rewards cards are gone.

Right, and then they in turn need to charge higher prices to make up this loss. Cashback is a scam.

but since they charge the same prices to holders of credit (2% fee) and debit (0.05% fee), users of credit cards are de facto subsidized by cash/debit payers in the US

so as an individual it still may pay you to have one

> users of credit cards are de facto subsidized by cash/debit payers in the US

Yes, sadly. So you have to play the game in order not to lose, and playing the game means that the credit cards take their cut, which means everyone loses except the credit cards.

Im not sure where this incredible fear of CCs comes from. It literally doesn’t matter what the APR is unless you’re irresponsible. Just pay the card off before it’s due. CCs are not complex beasts you don’t need a degree to understand them you barely need a high school diploma. The rules are simple:

- don’t pay for one, unless you can justify the perks

- don’t spend more money than you have. That’s a general rule of finances. I know people get into emergencies. Try to keep the overage as small as possible for as little time as possible. As soon as you have an overage your whole goal should be getting that debt cleared up as fast as possible.

- credit cards are only a tool to tell the financial world you are are responsible. So don’t use one if you can’t pay it back.

> Im not sure where this incredible fear of CCs comes from. It literally doesn’t matter what the APR is unless you’re irresponsible.

That's exactly where the fear comes from. Credit cards are really a test of financial self control, and a lot of people have really poor self control. Many people also don't seem to truly understand how interest works, they just see easy access to money in exchange for a monthly payment that they can afford.

Credit card companies have also intentionally targeted people with poor financial literacy. When I was high school and college (late 90s/early 2000s) it was really common for companies to set up booths on college campuses offering credit to kids who had little or no understanding of what they were signing up for and no source of income. I think regulations were eventually passed after some public outrage in response to news stories about college kids wracking up five figures of CC debt with no means to pay it off.

The same way obesity is a problem.

The rules are simple:

- don't eat unless you're hungry

- don't eat more calories than you expend. That's a general rule of health. As soon as you have an overage your whole goal should be getting that cleared up as fast as possible

- calories are only a tool to fuel your body. so don't eat them if you don't need them.

The overabundance of unhealthy but relatively cheap food that makes people fat and the abundance of large unsecured credit at high interest is actually a pretty good comparison.

Are you sure your cash back is funded by people paying interest on the loans as opposed to businesses paying credit card fees?

Really, most people should have charge cards and not credit cards. Charge cards are meant to be paid off at the end of every month.

Why not just debit cards? Pulls money directly from your account, you can only spend what you have, expenses are visible directly and works everywhere a credit card works. In many parts of the world, people basically use debit cards for everything, credit cards only for some cases.

In the US, using a debit card frequently means that you are liable for fraudulent use, lost money, etc.

A credit card offers a ton of legal protection (stolen number is not your problem) and frequently other protections as a benefit. For example, anything I buy with my cc has the warranty doubled up to 3 years as a benefit.

> In the US, using a debit card frequently means that you are liable for fraudulent use, lost money, etc.

Sounds like the US needs to modernize a little bit then, I have the same protections with my debit cards, besides the extended warranty.

There are fraud protections on debit cards in the US as well, but the problem still starts with your losing your money, and you have to take action and time to get it back. With a credit card, the bank is out the money initially instead of you.

Last time I had a fraudulent charge on my debit card I went to the web portal, hit "Dispute/Chargeback" or whatever it said, it asked me for a reason, I answered "fraud" and it asked for details and blocked my card. Couple of hours later I had the money back in the account and a couple of days later I could pick up the card at the bank. Doesn't feel like a major hassle really.

That sounds like a hassle to me, and from the point of the fraudulent charge to the chargeback you could have been affected by bounced checks due to unexpectedly deplete funds. I don't see the value when you get complete protection, and 30 day free loans from a credit card for no cost.

Ideally this would be good, but it's bad advice today for anyone capable of paying off their balance monthly.

In the US, credit card companies charge 2.5% - 3% merchant fees on every swipe, and their agreements forbid merchants from passing these costs on to customers. The net result is that merchants raise their prices for everyone to cover the cost of the credit card fees. Essentially, even if you're paying in cash currency, you're still paying a sales tax to the credit card companies.

The only way you can avoid this tax is with a lucrative rewards card. Anything else you do -- pay by debit card, check, cash -- will result in you paying a sales tax to the credit card industry.

> In the US, credit card companies charge 2.5% - 3% merchant fees on every swipe, and their agreements forbid merchants from passing these costs on to customers.

That's out of date. Since 2013 merchants have been able to surcharge for using credit cards since 2013 (except in places where it is illegal). Here's a Q&A from Visa about this [1].

There are five states (Colorado, Connecticut, Kansas, Maine and Massachusetts) where state law makes credit card surcharges illegal.

Even before that they could effectively surcharge by offering a discount for not using a credit card. (That also works in the states that ban surcharges).

[1] https://usa.visa.com/dam/VCOM/download/merchants/surcharging...

Sounds like legislation has failed then, when credit card companies are effectively forcing people to use credit cards because otherwise they'll have to pay this fee. And if they do use credit cards, they get a fee too.

Damned if you do, damned if you don't.

Businesses issuing credit cards are not forcing people to use credit cards, merchants not offering a lower cash/debit price are encouraging people to use credit cards.

For example, Target in the US gives you 5% off for using ACH (which debits your bank account).

But other retailers, like Walmart and Home Depot, are betting that people spend more if they use a credit card to buy.

(Beaten to it, woops) One of the major upsides of a credit card is that in the case of fraud, mischarge, etc your bank account isn’t affected while you get things sorted.

From what I understand many debit cards do have fraud protection of some sort but among other things it’s not instant so if the timing is bad…

debit card requires you to have the full amount available at the time of payment. safe credit/charge card usage only requires that your monthly income exceeds your monthly expenses. most people get paid biweekly or monthly. if you have enough surplus income, you can just maintain a bigger buffer in your checking account to offset this, but it's nice to not need to.

> debit card requires you to have the full amount available at the time of payment

Yes, and for many, this would be a benefit rather than a drawback, as it forces them to wait and acquire the funds for the purchase before doing the actual purchase. Purchasing things with credit and then not being able to pay it back would put you in a worse position, in most cases.

yes, I get that. some people can't consistently balance a monthly budget. but you asked why not use only debit, and I gave you a reason. for people that can manage a monthly budget, a credit/charge card is strictly better, even if you don't take cashback/rewards into account.

From the (US-based) user perspective: better buyer protections, non-negligible rewards

What is so complicated to understand about credit cards? Do you really need to have a Nobel in economy to understand that you shouldn't charge for things you won't be able to pay at the end of the cycle?

I think plummeting savings (down to $600B from $4T as of October of last year) is probably the best indicator of a major incoming recession. The layoffs haven't really significantly impacted anybody outside of the tech sector and I think that's in part because consumers are still spending. However, they are spending their dwindling savings, not extra cash, and getting into credit card debt. This will eventually come to an end and then it will really hit the fan. I also don't see FED stop raising interest rates any time soon which puts even more pressure on economy. It's hard to see how any of this will result in a "soft landing."

Savings are not anywhere close to "dwindling". There are still huge excess savings accumulated during the pandemic. Relative to 2019 baseline ($1.4T annual), Americans accumulated about $2.2T in excess savings.

The 2022 shortfall relative to baseline is about $800B. Even if this continued it would take another 2 years to burn off excess pandemic savings. And that doesn't even count the sizable gains in home equity and investment portfolios over the period.

The layoffs in tech so far are a drop in the bucket. The pace of hiring overall surged unexpectedly in January (517,000 jobs added) - that's going to keep the Fed wanting to raise rates.

On the other hand, tech (and finance) layoffs probably impact the economy more because those being laid off are generally making higher salaries than most other industries. You've gotta wonder if tech layoffs are going to start hurting local economies in the Bay Area and perhaps Seattle.

That $4B number was a huge outlier, though. Here's the FRED graph (which should be a required link any time someone wants to talk about economics numbers): https://fred.stlouisfed.org/series/PSAVE

The combination of restricted consumer economies and extensive government assistance produced a savings boom the likes of which we have basically never seen in the US in the era of modern economic data.

And it's over, and so naturally consumers are spending down their bank accounts to the levels that they felt were appropriate before the pandemic. The point is that the current conditions are a much better approximation to "normal economy" than what was happening in 2020/21.

You can explain the inflation burp very well via the savings data. But trying to read a recession into it seems IMHO pretty ridiculous.

How does the savings numbers compare historically?

Honestly I've been hearing since 2008 about the next coming crash and it still hasn't come, despite massive shocks to the economy. Perhaps we're more robust than we think?

I get it - fear sells. But look at the recent job numbers? GDP grew last quarter? Inflation has slowed down.

I stayed with the same job since 2017 - too afraid to change jobs after the pandemic hit. No raises at all, and we're at a company that was able to profit from COVID-19. My wife and I have been taking huge credit card losses lately by staying with the company. I'm now interviewing and getting out. The inflation is killing everything. Definitely saw my grocery and gas bills double, easily. It's really hard to live in California right now, since every item at the grocery store got their with Diesel fuel (which is 5.00, peaked at 8 in the summer).

> I also don't see FED stop raising interest rates any time soon

The FED will do one or two more rate bumps for 0.25% in the next couple of months and then stop. At least that’s the collective belief of the bond market. Unless you know something that bond traders don’t.

What does a "hard" landing look like and will things return to the way they were?

This would be expected in a recession. First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone. You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again, only this time we've already played the QE card. So it will be interesting to see.

My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound?

> My question for more financially savvy HNers, is I recently changed my investment portfolio to be more in money market and bond accounts since it seems cash will be safer as stocks would expect to go down, with the thought that once it bottoms out I can move back to stocks when they are low. Am I wrong on this reasoning or is the underlying logic sound?

You are trying to time the market. That is notoriously difficult. You are almost for sure going to miss the ideal timing. That's why there's the saying, "time in the market beats timing the market". There's many write-ups on this topic, but https://www.schwab.com/learn/story/does-market-timing-work shows a decent breakdown of different strategies and how they would have worked out.

> You start missing house payments, soon homes start getting foreclosed on, the boom we've built in construction starts to burst, and we have 2008 all over again

A few things here:

1. We have less building now than during the lead up to 08: https://tradingeconomics.com/united-states/housing-starts

2. Subprime mortgages are dramatically lower in volume

3. ARM loans are dramatically lower in volume

Just because there might be an increase in defaults doesn't mean we're going to see anything like 08.

I'm generally not sophisticated enough to time the market, but it seems like the largest player in the market is trying to crush it in order to save the dollar. Is it timing the market to recognize this fact and adjust one's portfolio accordingly?

In other words, I don't know what the stock market will do later today, next week, or for the next month, but it seems the general direction will be down until the fed pivots. Not straight down, there will be up days, weeks, months, but overall down. Don't fight the fed.

> but it seems like the largest player in the market is trying to crush it in order to save the dollar.

The US dollar index is now stronger than it's been at any time pre-pandemic since 2002. If anything the Fed is most likely trying to do the opposite, weaken the very strong dollar, as it did in the early 2000s and 1980s.

> it seems the general direction will be down until the fed pivots.

More likely, it will be down until market participants are sufficiently convinced the Feds will pivot enough, and then it will rebound, at unknown velocity.

And, yeah, trying to strategize around that fact is trying to time the market.

First agree with timing the market. But I am a bit skeptical about your overall point. Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?

The US markets are the most aggressively optimized game theory engines on the face of the planet.

The biggest mistake you could ever make is thinking that the prices in the market reflect perceived value of things today. Everyone is playing in 2nd or 3rd order terms, at minimum. Anyone playing first-order is going to get steamrolled unless they have a latency advantage.

> Historically this has been true, but many people think we are at an inflection point and historical trends might no longer be true. This time is different is certainly often said and rarely correct, but ... this time is different, maybe?

During the Great Recession we were told that the time of outsized market returns were over. We should expect to no longer see 10% YoY increases and plan around a more modest 3%–4% return for the foreseeable future. Between Jan 1, 2009 and Jan 1, 2023, the market went up like 450%. Including the recent market "bloodbath", we've had a 11%+ annualized return on investment in the stock market since the GR.

The moral of the story? Stop listening to people who claim to know what the market is going to do. Even if one of them does, the odds that you'll be able to pick that specific soothsayer out of a lineup is near zero.

Good luck, timing the market, and ‘this time is different’ are subcategories of predicting the future.

Ask yourself: if you could predict the future, wouldn’t you already have the trading results to prove it?

> we're going to see anything like 08.

Right because this time we're in a much larger asset bubble than we were back then.

At this point it wouldn't surprise me if we don't go into a recession because the larger the bubble gets the more desperately we need to keep some air in it. It would not surprise me to see cheap money return only because the alternative might, at some point, be the collapse of the entire systems.

We'll keep the bubble going so as long as we can, but the longer we punt this off the more extreme the breakdown is going to be.

This time it is much worse, and for stupid reasons.

The US government funded its huge balance sheet expansion mostly by short term obligations. When rates in long term debt were at historical lows… it chose a to go in on short term instruments (because interest rates never rise!)

As that short term debt becomes due and it needs to be rolled over, it will face a much higher interest rate, severely impacting the federal budget.

The last crisis was smoothed over because the fed stood in as buyer of last resort. It’s not clear it will be able to afford to do so this time.

> not clear [the Fed] will be able to afford to do so this time

The Fed is fine. Its limits are inflation and unemployment. The latter is proving incredibly forgiving right now. A single-mandate central bank would be tempted to plunge the economy into recession right now to cure the inflation.

> You are trying to time the market.

Maybe, but they said they're going into bonds here which seems like a pretty safe move at this point (unless you expect substantially higher interest rates from here - I think that's unlikely, more likely rates will plateau after a couple more Fed increases and stay there for a while).

I can get close to 4.8% on 26 week t-bills right now, do you think I can get that kind of return in the stock market (index funds) over the next 6 months? Maybe, but I'd rather go with the safer bet on t-bills here. (Sure, there's a non-zero possibility that the clowns in Washington will do something stupid that leads to a [likely short-term] default, but if that were to happen stocks and pretty much everything else would tank as well)

If you need the return in the next 6 months that’s not timing the market and putting it in equities would be bad even if you expected equities to out perform bonds. Having your portfolio invested in different things based on investment horizon is a normal part of portfolio design.

Timing the market is changing that distribution based on your opinion of what the markets will do.

subprime residential mortgages are lower, but commercial is way up.

I woke up this morning realizing I hadn’t seen any press talking about foreclosures in awhile so looked up the US stats. They are at incredibly low levels. Banks have clearly become very conservative about the loan products they are offering and seem to be sticking to very safe fixed rate mortgages.

I honestly don’t see a foreclosure spike happening any time soon. These things take a while to build and we are starting at the floor. Unemployment is at incredible lows. The economy is running hot, but no recession or housing bust seems to be in view.

Maybe later. Likely eventually.

That's how all recessions start.

> That's how all recessions start.

Most recessions are preceded by several months in which unemployment is rising significantly from the relative low. Its probably the most reliable recession predictor (visually, looking at a graph, the oscillations between the closely-spaced 1980 & 1981 recessions seems to be the only case of a recession not having that signal, and there are very few cases of a clear multimonth rise after the (usually shortly post-recession) recession-associated peak that do not signal another recession.

It's also how non-recessions continue.

So basically useless data then for determining whether a recession is coming.

The issue is generally that people are bad at timing the bottom, and often times it actually pays off to invest the same amount in dollars into the stock market, since you will buy as its going low and have more room for going back up.

Yep, I've bought the bottom a few times since March 2020 and I haven't found it yet.

There’s a very small chance you are going to time the bottom. The only way to time the bottom is to keep buying by dollar cost averaging. For most of us, that’s probably the wisest course vs. actively moving money around and trying to time the market.

I do dollar cost averaging and have since the early 90s when I first heard the term mentioned on a radio investment advice show (mutual funds, then). It has served me well. Recently, I started to do this into a couple index funds of my own creation using Fidelity’s Solo FidFolio and Stocks By the Slice (fractional share) features.

First, it’s not even clear that a recession will happen. And unless you are retiring and need the money in the next few years, it’s not wise to convert stocks into cash. You are trying to time the market which is pretty much impossible.

The people accumulating large credit debt have very little overlap with homeowners. The reason for this is very simple. The vast majority of homeowners purchased their house before 2021, and therefore are sitting on gigantic amounts of home equity. They have access to HELOC at much more favorable interest rates than credit card debt. (And no, we've seen barely any increase in HELOCs[1]).

In addition the average recent homebuyer has a FICO score of 768[2]. These are not the type of people who are running up credit card debt and living beyond their means. So while credit card delinquencies may go up, it's primarily concentrated among the poor, the young and renters whose budgets are squeezed by rising lease costs. In this group there are barely any homes to foreclose on.

[1]https://fred.stlouisfed.org/series/RHEACBW027SBOG

[2]https://www.bankrate.com/real-estate/average-credit-score-to...

> The people accumulating large credit debt have very little overlap with homeowners > HELOC

That sounds sensible, however I didn’t find any data to back up that assertion.

I did find “Higher-income people have more credit card debt, as do people who own their own homes.” which hints that you might be stating something incorrectly, or our definitions differ. Source text seems credible: https://www.moneycrashers.com/average-credit-card-debt-ameri...

Higher income people have higher credit card debt because they spend more money. The issue is whether they're paying their bill at the end of the month or using it to finance their consumption and letting the balance grow.

Guess to be more accurate I should say "accumulating large credit card debt relative to their ability to pay the monthly balance". Which to be honest there's not much evidence is growing in any segment of the population. Wages have risen faster than credit card debt, so it's likely the "record debt levels" are simply people getting wealthier (in nominal terms).

Sure. Sounds sensible. But it seems difficult to find figures that actually support your intuition.

Bonds are a good place to hang out in turbulent markets if your goal is to preserve what you have, but be careful with municipal and high-yield ("junk") bonds. These can and do go to zero sometimes. Bond etfs can sting unsuspecting investors, as their value can shift dramatically when rates change. Government treasuries are considered safest.

Optimistic view: inflation has risen by about 8 percentage points over the last two years, but average credit card interest rates have climbed only about 4 percentage points. So relative to inflation borrowing money got cheaper, leading to a rise in debt.

This view is likely overly optimistic.

But the goods being bought with the credit cards went up 8%.

Consider before: Bob bought thing X for $100 before and then paid Y% interest on that debt. Now he buys it for $108 and pays (Y+4)% interest. It’s more expensive all around, even if his wages went up by the same 8%.

Sure, but when he as to pay (Y+4)% interest in a year, the money he uses is only 1/1.08=92.5% as valuable as it would be today because today that money buys 8% more than in a year. Thus his effective interest payment is lower (assuming inflation continues, and for simpler numbers pretending like interest payments are yearly and not monthly)

Stop trying to time the market. Virtually every piece of data available shows that on an individualized basis, you can't.

Put your money in index funds (or a Target Date fund for true hands-off investing) and go do something interesting and useful with your time instead of playing a losing game of trying to eke out more gains from a market teeming with sharks.

> First you use your credit cards to keep things going, eventually that runs out your now in twice as much debt at much worse interest rates, and soon that's gone.

Consumers have more financing options then ever, like when you buy a mac book over 18 months interest free versus paying straight up. Car loan preference has gotten longer: 5-6 years for example.

Its not necessarily good that more financing options leads to more debt, but its not apocalyptic either. This really depends on how they're measuring, and if they count balances that are being paid off in a timely manner or if these are minimum payments incurring interest.

I'd agree that moving into bonds for a while is a good idea here. I'm especially putting money into T-Bills as we're getting around 4.7% for a 26 week T-bill right now. The more bullish will say that we have bottomed out and the Fed is going to stop raising rates and start dropping soon, but given today's strong jobs report I don't see them dropping rates any time soon. And this credit card debt info (and auto loans defaults are up as well) makes me want to continue to be cautious about stocks.

What I have been doing is buying 1 month CD's. They are at great rates now and don't have the long time commitments other CDs have(you can get them via a brokerage like Morgan Stanley or Schwab). I have been seeing rates of 4.2-4.3%, the rest of my money is in high interest savings which is yielding in the high 3's. I think we will see a sharp correction and have alot of money on the sidelines once things start to fall apart.

Wealthfront is paying 4.05%, and if you can convince someone to open an account and use your referral, you get an extra 50 bps for 3 months, up to 4 times, for 12 months of 0.50% bonus.

You could get 4.55% for up to 12 months with 100% liquidity, much better than a CD.

You can get 1 month Treasury Bills for 4.55% at the moment which are state/local tax exempt and you can sell at any time.

There are better high yield savings, Lending Club 4%,UFB Direct 4.21%, Primis Bank 5.03%.

Wealthfront cash has a 4% checking+savings account (the distinction is no longer necessary, as iirc the monthly withdrawal limit has been done away with a few years ago).

Have you tried Primus? A bank offering a better percentage than RRP seems a bit sketchy and temporary, but maybe I'm missing something.

I didn't try Primus, only the other two.

Trying to time the bottom of the market is basically gambling. You might get lucky or you might miss out on huge gains while the market continues to run.

I’ve adopted a dollar cost averaging strategy and just direct deposit a set amount to be invested every month into diversified ETFs.

Since I can swing it, I’m also putting money into CDs since the rates are pretty decent, instead of keeping cash in my checking.

Can you get a better rate with CDs than just parking cash in VMRXX [0]? The fund just ladders bills and gets 4.32% 7-day yield with T+1 liquidity.

[0] https://investor.vanguard.com/investment-products/mutual-fun...

If you want safety and are buying bonds, make sure you actually understand bonds. For example U.S. long term treasury dropped by 30% in 2022, even more than the drop in S&P500; if you don't understand how the Fed raising the rate could affect your bonds portfolio, don't buy bonds.

>This would be expected in a recession.

I may be misunderstanding, but are you saying we're currently in a recession?

As much as this makes a scary headline, credit card debt is almost exactly in line with wages. From January 2020 to today credit card debt grew 11%.[1] Over the same period nominal wages grew by 16%[2].

So if anything the current US consumers have a healthier ability to service their credit card debt than the already healthy numbers pre-pandemic. This is corroborated by the credit card delinquency rate which is still lower than any single year in pre-pandemic history[3]

Scare headlines like this are good for generating clicks, but ignore the basic reality. Most years credit card debt will hit a new record, because most years total GDP and consumer spending increases.

[1]https://fred.stlouisfed.org/series/CCLACBW027SBOG [2]https://fred.stlouisfed.org/series/CES0500000003 [3]https://fred.stlouisfed.org/series/DRCCLACBS

I'm curious how much of this is debt that is being carried for more than a month. I like many others use a credit card for the cash back / points and other benefits they provide and just pay off the balance every month.

My credit card debt looks substantially higher today than it did two years ago, but that's because I shifted from charging everything to my debit card to using a credit card that earns me rewards.

My average CC balance is about $1500-$2000, but it never stays there long enough to accrue interest because I just pay it off at the end of every month.

If it where the case that everyone was like you in their credit card use it would have to imply one month consumer spending also went up dramatically. This is something, at least according to earnings reports coming it, I don't believe we're seeing.

Or perhaps credit card popularity is increasing; spending that was previously done via cash and debit cards is shifting to credit cards. That would leave earnings constant.

Does it even count as debt or balance if you just pay the full statement every time? It never generated interest payments so I wouldn't think so.

I just recently started attacking my credit card debt, paying off cards. As I’ve paid off each balance two of the cards have immediately raised my limit to double or even 10x(!) my previous limit.

Which surprised me, the credit card companies think I’m making substantially less than I actually am.

I don’t really understand how it all works, as I feel like my total credit card debt is higher than I’d like, but my credit score got way better since now my balance looks way lower as a percentage of my total credit.

The first time I ever failed to pay off my card in full on a given month, they increased my credit limit significantly. That seemed a bit perverse to me: Hey, we see you're struggling, let us make sure you have enough rope to hang yourself with.

Prior to that I'd only ever increase my limit when my monthly spend would approach it, usually a holiday season.

Remember that payday loans are extremely profitable. Fucking with poor people and making them pay twice as much as everyone else is basically how most American businesses make their best profits.

I feel this might have been a coincidence, but at the end of the day every financial product is essentially a bet the banks make against you so they can get paid the interest.

Why do you have credit card debt at all? That’s why they think you are making less.

Cash is worth more to me than what the credit card company thinks about me. What a bizarre take. Carrying balances is a positive thing if you pay on time every month.

It’s actually a myth that carrying a balance does anything to your credit score. Low utilization of your credit limit and long history of the credit line, combined with history of on time payments is what matters.

You get a higher credit limit if they think your income is higher.

Also, parent poster is likely paying interest, which is the worst thing you can do on a credit card.

And yet I regularly have credit karma and others go up-down if I pay off before or after the company reports "average monthly balance". Its usually by a large amount too, 15-30 points.

Utilization has the lowest impact on your score. By your reasoning, homeowners with a mortgage should have a terrible credit score, when in fact it’s usually the opposite.

Utilization is 30% of your credit score making the 2nd largest single factor, behind only payment history (35%). That said utilization only counts revolving credit sources. That means installment loans like home and auto loans are not part of that particular factor.

Ah my mistake, I didn’t realize they don’t count installment loans as part of utilization.

FWIW "paying off a month's balance due" is different than "paying off my credit card debt" to me. The latter implies you're carrying an already due balance to a future term and adding the interest associated with that.

Carrying a balance means paying 20% interest rate, that is absolutely not a positive thing (in the US).

> Carrying balances is a positive thing if you pay on time every month.

This is absolutely never true.

Paying off a card every month is not "carrying a balance". Not paying off a card every month results in paying 15%+ rates in interest on the balance carried and actively lowers your credit score as long as you do it.

If you are carrying balances in the belief that it is a sound financial decision: stop immediately and take a moment to learn more before you make other poor financial decisions.

Err... not if you are paying interest. But if you got a 0% APR credit card, rock on!

There is no interest paid if you always pay full statement balance.

Then their statement is wrong, they are not carrying a balance.

If you’re talking about my statement, I’ve been carrying a balance. Dumb reasons and I make enough that I’m getting my head above water now. I paid off the balance on a few of the cards and they almost instantly upped my credit limit by thousands of dollars.

> Carrying balances is a positive thing if you pay on time every month.

It improves your score, for sure. Your credit score is an assessment of your value as a customer. A customer who pays off their balance every month before incurring any interest is lower value than a customer who runs a balance and makes payments. The bank wants more people like that.

No, it demonstrably does not.

What impacts your score (in this axis) is utilization of revolving credit: credit used over credit available. Driving the numerator to zero will increase your credit score. Increasing the denominator will also increase your credit score. There is no situation where—all else being equal—increasing the numerator will increase your credit score.

> Your credit score is an assessment of your value as a customer.

No, your credit score is an assessment of your trustworthiness to a creditor, and the expectation that you will pay off any balances in full. Individuals with high credit scores are not generally directly valuable customers as they carry little revolving debt and are given low interest rates for mortgages and car loans. They accrue and use significant amounts of credit card rewards, which further cut into your profits. However, they (generally) make more and larger purchases so you make more money on merchant fees than you do with other cohorts.

In some circumstances,you can also call the bank and ask them to raise your limit

As European who lived in the US for a while, I'm still baffled about the lax concept of paying off debt on (multiple) credit cards, vs. the strict monthly, limited and unavoidable debit from one's checking account.

It's all about cash flow. That has a huge value depending on your personal situation. But for a lot of poorer folks (and some wealthier ones with poor habits) it's just a way to temporarily spend more than you make. That's not a good use for credit cards, of course.

The superior protection of your assets from fraud is icing on the cake.

It varies by person, but if you are moderately responsible and have a budget or at least a good handle on your monthly income you would be stupid to not, say, buy things using Apple Card (just an example) with Apple Pay for 2% daily cash back. In addition, if someone swipes your debit card and steals the money from your account you are screwed. If someone swipes your credit card you just get a new card and nothing bad happens to you. You also have protections from bad sellers/merchants through chargeback mechanisms.

You just use the credit card as the debit card and you are good to go. Certainly not everyone can handle that and there's probably a society-wide problem here but that doesn't detract from the individual decision to be made in the operating environment.

Using debit-only can backfire on you, I did this for years and when I went to buy a house, banks were like, you have no credit. I was confused because I had various utility bills and they showed up on my credit report, and I had a score from those. But for house loans they ignore those, and only look at credit cards and actual loans, which I had none of. So I had to get a credit card and put off buying a house for a year until I could build the credit they were looking for.

Turns out it was pointless since I was self-employed they wouldn't give me a mortgage anyway (wish they had mentioned that up front, but they didn't). Ended up buying a small house with savings, which really hurt my future wealth, but oh well.

Well they abolished debtor's prisons a while ago...

Headline is spun. Current rate data is hugely confounded by the pandemic. In fact consumer debt dropped like a rock during the pandemic and is bouncing back to something that looks decidedly normal to me (higher than the 2011-2012 recovery, much lower than the 2002 dot com aftermath, etc...).

Please look at FRED charts when discussing this, I had to pull out one for personal saving in another comment in this topic too: https://fred.stlouisfed.org/series/CDSP

Also, piles of middle class people took those stimmie checks and applied them directly to outstanding credit cards. Now people's habits are just coming back.

This has been going on for a year now. Some indicator reverts to what it looked like pre-pandemic and people act like the world is ending.

Yes, yes, the sky is falling. The full picture gives hint to how banal this data is:

Consumer revolving credit: https://fred.stlouisfed.org/series/CCLACBW027SBOG

Consumer delinquencies: https://fred.stlouisfed.org/series/DRCCLACBS

Both are ~on trend for post-GFC US, total debt isn't inflation adjusted either so of course the number is getting bigger as unemployment is low and inflation has been high. A more useful metric is probably household debt service ratios like:

https://fred.stlouisfed.org/series/TDSP

It also doesn't (seem to) take into account how prevalent credit cards as a method of payment have become - for whatever reason, most of the companies I owe money to would rather I let them debit my credit card each month (and pay CC transaction fees) than send me a bill and let me pay them with online bill pay. My credit card bill is astronomical every month, but that's because all my bills are on it, and I just pay the balance every month.

They prefer auto-pay type setups because refunds are easier to prevent than squeezing a payment out of a non-payer.

Online bill pay (initiated on your end) is usually just paper checks and occasionally ACH transfers, both of which take time and are annoying to deal with, so of course they don’t like it.

> Yes, yes, the sky is falling

I agree that we shouldn't buy into the media's perpetual gloom & doom machine but I also caution against the knee-jerk contrarian "everything is fine" impulse.

The percentage rate of change is often the best signal in these kinds of indicators. We're around 20% YoY. The last two years (2004 & 2008) we hit that kind of level weren't strong economies.

https://fred.stlouisfed.org/graph/fredgraph.png?g=ZAtQ

The Dec '22 FOMC Minutes also hinted that the FOMC is also watching credit card levels. Interest rates have exploded higher yet consumers are increasing their credit card debt.

Consumer delinquencies link should be this one?

https://fred.stlouisfed.org/series/DRCCLACBS

Looks like a fairly low rate, but growing quite fast.

Yep - thanks. Updated my post. So much of the current crop of indicators is fairly obviously just mean-reversion. Of course there's the risk of a hard landing, but when delinquency rates are lowered via the stimulus funds it doesn't seem very interesting that they've increased once the stimulus money ran out.

Relevant, contextualizing, comments is a textbook example of why the web sorely needs a broadly used third-party comment system. How many readers of that article on cnbc.com will never get this perspective?

The "broadly used" part would ruin the entire concept.

That's definitely a challenge, but I don't think the task of comment ranking is hopeless if using sufficient author reputation signals. That's especially true if ranking is personalized.

What happened there in 2010?

An accounting change: https://economics.stackexchange.com/questions/15387/why-did-...

Does the TDSP data include the student loan pause?

I wonder how much of this debt is rotating debt that’s paid off every month?

I buy almost everything on credit/store cards - because with 1-5% back it seems stupid not to* - but I pay them all off every month.

I would argue this kind of ‘monthly’ debt should is not _really_ debt that should be counted in overall stats.

I suspect many ‘middle class’ people do the same. I’m not sure it’s enough to skew the overall number by orders of magnitude - but it surely is at least a measurable amount.

*It is manifestly unfair that richer folks who can get good credit cards end up paying less for everything than poorer folks who can’t, but that’s a different conversation…

Doesn’t seem much given inflation and price increases. Everything is 50% more expensive right now than a 2-3 years back

Inflation is 50% vs. 2006

Only 15% vs. 2020

This is an 18.5% jump in debt in a period where prices rose about 6.5%. It does not make sense to say that this is explained by inflation.

Lots of things have definitely gone up way more than 15% since 2020. My grocery bills are way more than 15% higher, for one. I'd say the 50% estimate's closer, there, despite our downgrading a lot of things we're buying, and once you factor in the awful shrinkflation in many products over that span. Housing (thank god we got locked in well before that) and healthcare costs (for us) are up way more than 15% since 2020.

But sure, mediocre TVs are still cheap as hell.

Food inflation in 2022 was 10%. Within food, only butter/margarine, eggs, and cafeteria lunches have seen prices rise more than 25%

Jan. 1st 2020 was more than three years ago. Prices are absolutely not up only 15% vs. 2020, which was the claim I was responding to. That's so wildly wrong it's in piss-on-my-leg-and-tell-me-it's-raining territory.

> only butter/margarine, eggs

But those are cooking staples... sure, you can reduce use to save money, but you can also switch to an all rice and beans diet to save money. It's not like if specifically pork, say, had gone up—sub beef, sub chicken, whatever, cool, not a big deal. Butter and eggs, though?

>Jan. 1st 2020 was more than three years ago. January 1st 2020 was 3 years, 1 month, and 2 days ago. Apologies for rounding. However, that really just pushes (albeit insignificantly) further against the claim that we have experienced 50% inflation over 2-3 years.

>Prices are absolutely not up only 15% vs. 2020, which was the claim I was responding to. That's so wildly wrong it's in piss-on-my-leg-and-tell-me-it's-raining territory.

On average (across America and across many different goods), they are. Prices may be different in your area or for what you buy (e.g. specific brands, stores, etc.).

>But those are cooking staples... sure, you can reduce use to save money, but you can also switch to an all rice and beans diet to save money. It's not like if specifically pork, say, had gone up—sub beef, sub chicken, whatever, cool, not a big deal. Butter and eggs, though?

The overall inflation across the average basket of food that American consumers buy over one year was 10%. That figure accounts for the fact that people buy staple goods more than other goods. It also assumes zero substitution (e.g. no change in number of eggs bought).

Inflation simply cannot fully explain an 18.5% increase in CC debt for the average American.

Perhaps it explains it for you/would explain it for you if you had increased CC debt. But, in that case, you are not representative of the average American.

What I responded to, emphasis mine:

> Inflation is 50% vs. 2006

> Only 15% vs. 2020

You:

> The overall inflation across the average basket of food that American consumers buy over one year was 10%.

[EDIT] Oh god, you're the same poster, how did this confusion happen?

10% is the one year category inflation for food, 15% since 2020 is the overall CPI inflation. These are different numbers because the first only looks at the food that Americans buy while the second looks everything people spend their money on.

The intent of my response was to explain why saying "my grocery bill has gone up 50%" does not negate the fact that there has been 15% inflation since 2020. This is because food inflation and overall inflation are not the same, and because you are experiencing an above-average increase in your grocery bill.

Perhaps food inflation since 2020 would be the more relevant number. That is 21.9%: https://www.usinflationcalculator.com/inflation/food-inflati... (you can calculate this by multiplying the food inflation numbers for 2020, 2021, and 2022, 1.104x1.063x1.039)

Private health insurance: Up ~15% last year alone, for me.

Inflation accounts for healthcare costs. That is baked into the 6.5% number.

Your experience is not supported by the data.

Well the data can refund my account, then. And those of everyone I know.

Inflation is a highly politicized topic. The means of calculating it is frequently under revision.

The US federal government is massively in debt in $USD terms, so inflation is good for them. On the flip side, they need to convince the world that inflation is under control or they may lose the status of being the world's reserve currency issuer. How can you accomplish both goals? Continue to debase the currency while you fudge the numbers.

> The means of calculating it is frequently under revision.

BLS frequently makes changes to how it calculates inflation. However, none of these changes make that big of a difference. I have never seen an economist arguing that inflation is actually 10+ percentage points higher than BLS is reporting.

If anything, many economists think BLS overestimates inflation because they do not account for substitution (e.g. people buying fewer eggs when the price goes up).

The data is not shopping at my local Raleys.

Your local Raleys jacking up prices locally is not inflation. I've seen people in this forum complain that inflation is bad because their personal choice of cereal doubled in price, but that is not the general case, and that is not inflation.

I know inflation numbers are based on a mix of items, presumably weighted by cost and volume. What might be most relevant here is to filter specifically things that tend to be bought using credit carts: most shopping, but not apartments, houses, cars (I assume)...

Of course, if I have to spend more to my rent, I have less for paying off my credit card. But it makes sense to me that if, e.g. rent went up $1000 and food $100, my credit card debt might rise more than if it were the other away around.

> presumably weighted by cost and volume

Inflation is weighted by the average of what people buy (although it is not quite that simple, because it needs to be the same year-to-year). Inflation less housing is still not even close to 18.5%. The only categories over 18% are energy (e.g. fuel).

Because inflation affects products which you have to buy to survive, like food, electricity and gas.

And if you only look at gas its 90% vs 2020. A lot of people need their car to get to work.

I’m helping! Being unemployed sucks. I’m having more trouble than I’ve ever had getting a new job this time around.

So, you don't have any savings and are using only credit card? You don't have a means to pay off the card, so are using it with the hope of getting a job to eventually pay it off? Just trying to make sure I understand and am not judging

Yep that’s the situation - i kind of don’t know what else to do. Unemployment covers my mortgage and utilities, but that’s it.

I wonder if this approximates the rate of inflation.

Assuming spending behavior is relatively constant, then debt must grow equal and opposite to the declining value of the currency.

ex. your money gets you 20% less stuff now, so you have to spend ~20% more to maintain your standard.

Does interest on US credit card debt typically float with national interest rates, or is it fixed when you apply for the card?

If it's the former, this seems like it could be an insidious trap for people who grew up in a world of 0% interest rates.

I've been short selling MA and V for a decade. Alas, no good so far, but one day it's gonna work!

I'd like to see the numbers on services like Affirm that are plastered all over the place.

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