I think we might have a HUGE problem here. Anyone with more financial education want to weigh in?

Credit card loans are great with the low initial rates, then the hammer gets dropped on you.

I think people use them because they see the low initial rate and don't look any farther, they are also incredibly easy to get. There is no loan application or anything other "hoops" to jump through.

SwigAg11 said:

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I think it's an issue, but I would also like to see the chart extended more than just 3 years.

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indeed, starting just before the covid lockout seems like an odd choice

EMY92 said:

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Credit card loans are great with the low initial rates, then the hammer gets dropped on you.

I think people use them because they see the low initial rate and don't look any farther, they are also incredibly easy to get. There is no loan application or anything other "hoops" to jump through.

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We wanted to float about 10 grand yesterday for my wife's business with a credit card and the fee was 5%, enough that we just used cash, so there is at least some barrier there, just for the sake of discussion. We would rather draw down some on our savings for a week than pay a $500 fee.

Had an offer for $20k cash advance at 4% interest for 4yrs from one of my credit cards (AMEX I believe) back in April. I jumped on that.

I'm sure the bulk of that is people in over their heads, but there are some that will take the cash up front on offers like that just because

Sea Speed said:

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EMY92 said:

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Credit card loans are great with the low initial rates, then the hammer gets dropped on you.

I think people use them because they see the low initial rate and don't look any farther, they are also incredibly easy to get. There is no loan application or anything other "hoops" to jump through.

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We wanted to float about 10 grand yesterday for my wife's business with a credit card and the fee was 5%, enough that we just used cash, so there is at least some barrier there, just for the sake of discussion. We would rather draw down some on our savings for a week than pay a $500 fee.

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That's the point of higher interest rates. Increase the cost and lower the speed (volatility) of money.

Tom Kazansky 2012 said:

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Peep the dates and hang on fellas.



Recession inbound (already here)

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Boomers retiring and labor force participation decreasing

source: https://www.stlouisfed.org/on-the-economy/2021/december/excess-retirements-covid-19-pandemic)

And yet still no discussion from any politician about Social Security, Medicare, and Medicaid

I can't see the original picture. I suspect my work computer is blocking it.

But, I can take a guess.

Bottom line, most people are screwed.

tysker said:

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Sea Speed said:

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EMY92 said:

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Credit card loans are great with the low initial rates, then the hammer gets dropped on you.

I think people use them because they see the low initial rate and don't look any farther, they are also incredibly easy to get. There is no loan application or anything other "hoops" to jump through.

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We wanted to float about 10 grand yesterday for my wife's business with a credit card and the fee was 5%, enough that we just used cash, so there is at least some barrier there, just for the sake of discussion. We would rather draw down some on our savings for a week than pay a $500 fee.

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That's the point of higher interest rates. Increase the cost and lower the speed (volatility) of money.

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That wasn't an interest rate, it was a fee.

Sea Speed said:

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tysker said:

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Sea Speed said:

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EMY92 said:

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Credit card loans are great with the low initial rates, then the hammer gets dropped on you.

I think people use them because they see the low initial rate and don't look any farther, they are also incredibly easy to get. There is no loan application or anything other "hoops" to jump through.

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We wanted to float about 10 grand yesterday for my wife's business with a credit card and the fee was 5%, enough that we just used cash, so there is at least some barrier there, just for the sake of discussion. We would rather draw down some on our savings for a week than pay a $500 fee.

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That's the point of higher interest rates. Increase the cost and lower the speed (volatility) of money.

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That wasn't an interest rate, it was a fee.

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They are effectively the same thing when you are getting a line of credit or collateralized loan.

eta: from the banking/risk perspective, the underlying documentation and capital needs to offset the line of credit/loan are different. calling it "fee" is easier for the bank, less documents and no capital outlay

0 Interest credit cards helped get a kid thru college. Sign up for one and use the 18 months to pay it off. Cancel it and get another. Did that twice over her 5 years.

Not all debt is bad. You have to know how to use it.

For example: wife and I needed a new mattress. Ours was flat dead and uncomfortable. Mattress Firm was running a 0% interest for 5-years earlier this year. So, we bought a new mattress and were able to string that sucker out at 0%, HELL YES!! With today's inflation, that basically an 8% discount. But wait, there's more, we also got $300 dollars in freebies for in-store stuff, but wait, there's more, we also got some kind of $300 in-store credit on top of that for opening an account. So, we just "purchased" another mattress for our front bedroom because that cheap ass one had worn out as well from in-laws staying.

Obviously, Mattress Firm will still make a positive gross margin on the product, but for us, THAT is using debt wisely. We're reducing our monthly real interest thanks to the Fed.

Those are people trying to sustain their consumption rates in the face of inflation. 84 month notes on near 6 figure rides, using credit to pay bills and mortgage payments, buy groceries, instead of cutting back consumption, which will finally slow inflation (and sharpen the recession). We're in for a pretty good reset when this credit bubble bursts as people become unable to keep juggling it.

MouthBQ98 said:

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Those are people trying to sustain their consumption rates in the face of inflation. 84 month notes on near 6 figure rides, using credit to pay bills and mortgage payments, buy groceries, instead of cutting back consumption, which will finally slow inflation (and sharpen the recession). We're in for a pretty good reset when this credit bubble bursts as people become unable to keep juggling it.

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Several financial podcasts I listen mention that the market still hasn't really priced in the higher rates mostly because the lower spending has yet to really hit companies. It may take another 3-9 months depending on the business. Firms have been able to cutback on labor and overhead from covid, but as revenue continues to slow, especially in the face of raising labor and overhead costs, businesses are going to show decreasing profits YoY.

Remember when WEF said we'll own nothing and be happy? They are cheering this trend onward.

The only reason I have the Apple Card is because we're in the Apple ecosystem and they do 12 months 0% when you buy Apple products. On top of that, you get 3% back instantly. I first got it when my wife and I got new phones in '19 and used it one other time when we bought the 2 older kids iPads. Because of this, even though I hate carrying debt, I didn't see a need to pay up front for any of those items. I'm sure Apple is making money off of it some how, but it seems like a good choice as long as you make your payments on time.

SwigAg11 said:

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I think it's an issue, but I would also like to see the chart extended more than just 3 years.

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I would like to see a chart that compares number$ to number$, not number$ to %%. Also, show the last 20 years.

CDUB98 said:

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Not all debt is bad. You have to know how to use it.For example: wife and I needed a new mattress. Ours was flat dead and uncomfortable. Mattress Firm was running a 0% interest for 5-years earlier this year. So, we bought a new mattress and were able to string that sucker out at 0%, HELL YES!! With today's inflation, that basically an 8% discount. But wait, there's more, we also got $300 dollars in freebies for in-store stuff, but wait, there's more, we also got some kind of $300 in-store credit on top of that for opening an account. So, we just "purchased" another mattress for our front bedroom because that cheap ass one had worn out as well from in-laws staying.Obviously, Mattress Firm will still make a positive gross margin on the product, but for us, THAT is using debt wisely. We're reducing our monthly real interest thanks to the Fed.

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You do realize that the interest on that debt is hid in the upfront price of the mattress, right? Along with all the "freebies" you got.

Would the price have changed if he paid cash up front (freebies aside)?

aTm2004 said:

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The only reason I have the Apple Card is because we're in the Apple ecosystem and they do 12 months 0% when you buy Apple products. On top of that, you get 3% back instantly. I first got it when my wife and I got new phones in '19 and used it one other time when we bought the 2 older kids iPads. Because of this, even though I hate carrying debt, I didn't see a need to pay up front for any of those items. I'm sure Apple is making money off of it some how, but it seems like a good choice as long as you make your payments on time.

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The gross margin on mass produced electronics is ridiculous. It would not surprise me if it were in the multi-thousand percent.

Yeah…inflation/costs are skyrocketing because Brandon is in office.

Average financing rates right now:

New cars: 6.27%

Used cars: 10.33% !!!!

(source: Edmunds)

— CarDealershipGuy (@GuyDealership) November 2, 2022

Young people (who borrow more/make less) pay the price when the socialists win.

aggrad02 said:

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CDUB98 said:

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Not all debt is bad. You have to know how to use it.For example: wife and I needed a new mattress. Ours was flat dead and uncomfortable. Mattress Firm was running a 0% interest for 5-years earlier this year. So, we bought a new mattress and were able to string that sucker out at 0%, HELL YES!! With today's inflation, that basically an 8% discount. But wait, there's more, we also got $300 dollars in freebies for in-store stuff, but wait, there's more, we also got some kind of $300 in-store credit on top of that for opening an account. So, we just "purchased" another mattress for our front bedroom because that cheap ass one had worn out as well from in-laws staying.Obviously, Mattress Firm will still make a positive gross margin on the product, but for us, THAT is using debt wisely. We're reducing our monthly real interest thanks to the Fed.

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You do realize that the interest on that debt is hid in the upfront price of the mattress, right? Along with all the "freebies" you got.

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It somewhat is. Tempurpedic, from my understanding, sets prices on their mattresses, so it doesn't allow MF to game it as much.

So, my purchase is still gaming them much more than if some person were to walk in off the street and buy the mattress outright at that price.

aTm2004 said:

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Would the price have changed if he paid cash up front (freebies aside)?

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No

nortex97 said:

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Yeah…inflation/costs are skyrocketing because Brandon is in office.

Average financing rates right now:

New cars: 6.27%

Used cars: 10.33% !!!!

(source: Edmunds)

— CarDealershipGuy (@GuyDealership) November 2, 2022

Young people (who borrow more/make less) pay the price when the socialists win.

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Good gawd. Those interest rates make my eyeballs hurt. I've never paid anywhere close to that on a car. So glad all three of ours are paid off.

Shouldn't the CC companies be responsible for allowing people to continue to charge up despite the clear systemic risks in the economy?

Too big to fail even though they ignore the clear signs of danger?

Also, username checks out.

CDUB98 said:

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aTm2004 said:

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Would the price have changed if he paid cash up front (freebies aside)?

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No

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If they finance at 0% then a premium equal to the average interest rate is built into the price over their desired profit margin and you are paying that. Maybe they don't allow a cash price because the overwhelming majority of their customers are financiers and it's a marketing decision. If this is the case then there is a competitor somewhere selling an equal quality mattress at a discount. But if that is the only mattress you wanted then 0% financing is better than paying cash.

That chart is hard to get anything from. One var is in percentages (but we don't know of what - net worth? GNP? take home pay?) and the other var is in aggregated dollars.

And of course used car rates are higher, it's a riskier loan because the residual value of the collateral is extremely hard to price

bonafides - PhD finance


ETA: But the message isn't wrong, we have a big debt-to-capital ratio problem brewing. And to make it worse, unsecured debt is easier to get than secured debt.

The real scandal is that we completely neglect the financial education of our people.