Those that carry CC balances: Why?

[Anonymous]

One other thing i forgot to add was how my parents do there credit cards.
They have 2 cards one is pay in full every month the other is pay over time. The pay in full is for restaurants and daily stuff if they dont have enough cash on hand.
There othrr one is used for trips or car repair or big home appliances type stuff.
They are up in age that they dont want to chase points like i do with my cards.

[sarge12]

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@Anonymous wrote:

I don't mean to come off abrasive at all with this post as I'd genuinely like to understand this.  I'm not talking about people carrying a CC balance because they got in on a sweet 0% offer or because they had a huge expense pop up that they had to throw on a card or any similar reason.  That's one of the beauties of CCs and one of the reasons why we have them.

I'm asking this question more toward those that just carry balances for the sake of carrying balances.  Basically those that pay unnecessary interest.  You see, I used to be one of these people.  10 years ago even up to 5 years ago I always had a few thousand dollars in CC debt just riding along from month to month.  So what's the reason why I did it?  Simply put, because I didn't know any better.  I didn't really understand interest much other that it costs you a bit and I guess I was willing to pay that bit in order to not have to pay off the debt.  I had plenty of money in savings and the income to pay it off just fine; I guess I was just misinformed.  I'm wondering how many others out there now are like I was then?  Perhaps this thread will be eye opening to those few that could fall into this category.

I have not carried a balance in a long time.  I owe a lot to this forum and all of you kind people that have "shown me the light" when it comes to this subject.  Like many on this forum, I don't pay any interest.  I don't even know what the APRs are on my cards; the banks could raise them all to 99.99% tomorrow and not only wouldn't it impact me, but I wouldn't care.  Show me a 99.99% interest rate card that gives 3% rewards on all purchases and I'm all in

For those that do carry balances, especially significant balances, I'm interested to hear the reasons why.

I think smart words that are often stated in threads on this forum is that living by the rule of "if I can't pay for it today, don't buy it [on a CC]."  Maybe it will take someone 6 months to save up $1000 for a new TV, but the alternative in getting the TV right away is that you end up paying say $1300 for a $1000 TV when you pay it back in 8 or 9 months.  By carring balances, you essentially raise the cost of everything you buy, indirectly.  People on these forums may chase rewards on their cards and all of the CB rewards received in a year may not even total the $300 extra due to the interest from this single purchase.  Just an example.  I think in the past I didn't see the big picture.  Maybe some others don't either.  Maybe they do, but it doesn't really matter to them.  I find this type of info fascinating and enjoy hearing the different perspectives. 

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I can not agree more, I never even pay attention to the interest rate on a credit card. To me, a credit card is all about the rewards, extending warranties, purchase protection and such. If my balances are always insignificant, I do not even have to worry about them deciding to cancel my card, change terms, or anything else. I learned when I was young and irresponsible that credit cards take advantage of the temptation people have to get what they want now, rather than waiting until their paycheck can justify a purchase. You see it not only in credit cards, but society in general. Every time some newfangled Iphone or other device comes out there will be lines at the stores for hours before opening to buy something that you can wait till next year and get it for 1/3 the price. All these people want to be first to have it. What many need to learn is patience, but sadly, someone is at this very moment using an Iphone that was 3x todays price, and paid 29.99% interest on, to call their bankruptcy attorney.

[Anonymous]

We just closed on the house, bought new appliances and remodeled 3 rooms. That used our budget up and we decided we would forgo dining room furniture for a few months. My wife wanted table and chairs from Tommy Bahama, $12k. Our sales lady from the store called last week and said they were selling the floor model marked down to $2300. SOLD! I'll gladly pay a little interest for a few months. Credit cards are a tool. Sometimes you have to step over the dime to get to the dollar. I'm old enough to remember mortgage rates of 18% so $2k at 9% isn't a big deal.

[Anonymous]

The only time I ever carried CC balance was when I was in college. I just simply did not make enough money to cover all my expenses.

Since then though, I have never paid any interest.

[Anonymous]

Thanks for the replies on this topic thus far everyone.

It seems a lot of the reasons and examples given so far fall into the situational category that I referenced in the original post.  People have mentioned not being able to cover tuition payments, being out of work, a destination wedding, not being able to get a loan, etc.  All of these things IMO are situational, as in kind of out of the ordinary and not every day reasons which I completely get.  They are all certainly valid reasons for carrying balance.

I'm talking more people that carry a few grand in balances "just because" and not because they had anything come up. 

To the person above that spoke about being able to get a deal now that may not be available a few months down the line, I get it.  However, my thought process on this is that one may think about considering these things in advance; if one has a certain amount of money saved up for "splurge" type expenses they can make the purchase on their CC and pay it off and not have to carry a balance.  I guess it's about planning ahead to some extent.  Everyone is different though, I certainly understand that.

[Anonymous]

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@Anonymous wrote:

Thanks for the replies on this topic thus far everyone.

It seems a lot of the reasons and examples given so far fall into the situational category that I referenced in the original post.  People have mentioned not being able to cover tuition payments, being out of work, a destination wedding, not being able to get a loan, etc.  All of these things IMO are situational, as in kind of out of the ordinary and not every day reasons which I completely get.  They are all certainly valid reasons for carrying balance.

I'm talking more people that carry a few grand in balances "just because" and not because they had anything come up. 

To the person above that spoke about being able to get a deal now that may not be available a few months down the line, I get it.  However, my thought process on this is that one may think about considering these things in advance; if one has a certain amount of money saved up for "splurge" type expenses they can make the purchase on their CC and pay it off and not have to carry a balance.  I guess it's about planning ahead to some extent.  Everyone is different though, I certainly understand that.

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How is one to consider these things in advance when we don't know the future? I moved 1200 miles to take a new job so we were renting. Landlord decides to sell. Buy or move. I shelled out a lot of cash to get the deal done, but I again it's about the deal. The house appraised $65k more than I paid. There is a huge difference between debt used as a tool that you can afford and debt because you are living beyond your means.

[redpat]

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@galahad15 wrote:

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@redpat wrote:

Because someone needs too or wants to overspend for a lifestyle that can't afford to have.

That was easy........

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To be fair though, it's not always about overspending or living above one's means.  I have the means to pay off virtually all of my carried balances using my accumulated savings, I just prefer to use the benefit credit cards offer of being allowed to revolve a balance at super-low interest rates and pay it off over time or in phases, should I choose to do so.

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What do you consider low interest other than 0-1% unless all of your savings are in the market for dividends and capital appreciation regular saving after tax is less than the interest that you would be paying.  Looking at your sig I don't see any interest rates lower than a conventional saving rate even before tax.

[sarge12]

Part of the problem people have with credit card debt is also caused by what they call unexpected expenses. The thing is, these expenses should not be called unexpected at all. They should be called unknown expenses. If you live long enough, every appliance in your kitchen will need to be replaced. The alternator, shocks, brakes, starters on a car will eventually go bad. Roofs will need to be repaced, and illnesses will happen. What these expenses often are is actually unknown, and unplanned for. If you are not putting a sizeable amount of money in savings for the unknown, but not unexpected expenses, you are setting yourself up for credit card debt. It may make someone feel better to be able to say...how was I suppose to know the refigerator was going to quit working...to explain why someone is too deep in debt. Truth is,so-called unexpected expenses are not only expected...they are an absolute certainty, they happen to us all. It is wise to plan for them...maybe 10% of your take home pay should be saved for these expenses. 

[Creditplz]

I often carry small balances just for the sake of carrying a balance on one card, that I could pay at any given time.

But I have some friends who make more money then me by a long shot and carry balances, most of them just tell me they like keeping their finances flexible and don't mind paying a few hundred dollars or even a thousand dollars a year in interest.

[Kevin86475391]

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@Anonymous wrote:

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@Anonymous wrote:

Thanks for the replies on this topic thus far everyone.

It seems a lot of the reasons and examples given so far fall into the situational category that I referenced in the original post.  People have mentioned not being able to cover tuition payments, being out of work, a destination wedding, not being able to get a loan, etc.  All of these things IMO are situational, as in kind of out of the ordinary and not every day reasons which I completely get.  They are all certainly valid reasons for carrying balance.

I'm talking more people that carry a few grand in balances "just because" and not because they had anything come up. 

To the person above that spoke about being able to get a deal now that may not be available a few months down the line, I get it.  However, my thought process on this is that one may think about considering these things in advance; if one has a certain amount of money saved up for "splurge" type expenses they can make the purchase on their CC and pay it off and not have to carry a balance.  I guess it's about planning ahead to some extent.  Everyone is different though, I certainly understand that.

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How is one to consider these things in advance when we don't know the future? I moved 1200 miles to take a new job so we were renting. Landlord decides to sell. Buy or move. I shelled out a lot of cash to get the deal done, but I again it's about the deal. The house appraised $65k more than I paid. There is a huge difference between debt used as a tool that you can afford and debt because you are living beyond your means.

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To me this sounds like more of the situational type expenses BrutalBodyShots mentioned in the first paragraph rather than the planning in advance for 'splurge' type expenses mentioned in the bottom paragraph.

I agree with BrutalBodyShots that trying to save for unknown but reasonable-to-expect 'splurges' or 'great deals' is a very important part of good financial planning. I sort of see it two ways in that when it comes down to it: If someone hasn't already saved the cash to pay for a great deal or splurge on something they can reasonably afford to make the credit card payments on, then I can see doing it. Again, if you can afford to finance a $1,000 TV set (or any want vs need) and pay $1,300 over time, and it really won't risk your financial security - then fine, that's your business if you want it now and accept that you'll ultimately pay more than if you'd instead waited another 6 months or whatever and saved up, great, go for it. BUT, obviously the better option is to have already have that money saved up. Likewise, if you can get a deal on something you legitimately need and pay only $2K instead of $10K, then of course it makes sense to put it on the credit card and pay the interest. You'll still be much better off as long as you pay it off in a reasonable amount of time. However, once again the best case scenario would have been to already have the money saved, get the deal, and not pay interest at all.

So I think what it boils down to is that of course you can't really predict, "I'm going to want to splurge on a $1K luxury item in a few months" or "In a few months someone's going to offer me a deal I can't pass up that'll cost me about $2K." But, it is reasonable to think something may come up to compel you to spend $1K-$2K that isn't part of your regular monthly budget, so it's wise to set aside that contingency money if you can. If you haven't and it still makes financial sense to put the item/deal on the credit card, then great, but best case scenario is still to already have the money and save in advance IMO.