The Credit Card Conspiracy

a reply to: CB328

I like the premise, and while I think it's functionally accurate it's only because customers make bad purchasing decisions. Good budgets spend no more than 20% of their income on housing. But due to compounding interest and the 30 year mortgage you need to be making 3 house payments per month in order to avoid high fees. This means your base payment needs to be no more than 6.5% of your income. If you're paying $1000/month on a mortgage (a low amount in most areas of the country), you need to be making nearly $200,000 to afford that.

That's not how people buy though, we've sold the idea of an American dream as home ownership and instead a $1000/month payment is more likely going to be the home a person making $40,000 buys.

College is the same way, so many students think they need to graduate in 4 years from an expensive university. But the college system is actually pretty affordable if you change the plan a bit. Go to a community college for three years as not everything will transfer (15k), then attend a cheap state school for one year on a 2+2 style program (15k), then attend the expensive school for your final year (30k) and you'll end up with 60k in debt, which Pell Grants/family/college funds should cover 50k of, for 10k total debt. Compare that to the popular plan of 120k, which is offset to 70k and there's a big difference.

It's somewhat tough to address situations like these because capitalism relies on people making suboptimal purchasing decisions. Encouraging people to make better decisions ultimately shrinks the credit supply, which means shrinking the money supply, and slowing the economy. It requires the general population be bad with money, which then enables those who are good with money to succeed.

It reminds me of a friend of mine, he makes $150k/year after taxes, and lives in one of the lowest cost of living areas in the US, something like 90% of his income is disposable. I recently found out he's over $400,000 in debt, almost entirely on his credit cards because he's able to make his minimum payments and buys literally everything when it comes out. We're talking, the type of person who buys a new top of the line gaming computer every 6 months when the new cutting edge hardware comes out.

originally posted by: DAVID64
I cut up all my credit cards long ago.

You did a pretty good job too. It was hard gluing them all back together.