So many of the people bitten hard by the 2008 recession applied logic such as yours, and often drew down on their mortgages (cheaper than credit card) to buy TVs, cars and holidays.

Borrowing against a growing asset is different.

I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either!

I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :)

However, what's your experience with taking out that home loan? I'm worried that I might one day ask the bank for a serious loan (with a suitable amount of pre-savings) and be informed I cannot be lent to because I have no credit history at all. I know I can get a credit card and always pay it off at the end of the month to get a credit history, but by golly does playing that game sit ill with me.

If you consider your credit card to be a no-fee (or low-fee) payment mechanism that aggregates your monthly expenditures into a single bill, you can have savings theoretically (though in reality, probably not usefully) appreciating over the course of the month in a bank account, and then pay the bill for your expenditures at the end.

This simple money management technique reduces fees paid for ATM access, allows your assets to maximally appreciate, and builds up a very solid credit history. Credit Cards and Lines of Credit aren't evil; they're useful, but they're not hard to use in a manner that will bite you.

* Pay the entire balance every month, ideally by direct debit (they don't like doing this) * Ignore offers to increase credit limit * Actively reverse automatic credit increases. My card company tried ridiculously hard to talk me out of reducing my credit limit.

This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

Student loans also count towards credit worthiness.

For a home loan, having little or no credit, isn't necessarily a deal breaker, but does limit lender choice. At least in the UK.

I dislike the game partially because the more indirection between spending and the actual money, the easier it is to overspend or lose track. This is the whole point, of course! So I just stick to the debit card for net, and actual cash from ATM when out shopping.

I do know the UK doesn't use credit score as the US does, so it may operate on a different premise where gaming the score matters.

A card user who pays their balance every month is still valuable to the card company though, as it draws fees on every transaction. Someone who uses their 1.5% cashback card to pay for EVERYTHING and puts a couple thousand a month on the card brings in some cash too, and the day they lose their job they might start racking up debt.

At one point I had as much available credit across two cards as balance on the mortgage, whereupon I decided it was silly and I'd like them to reduce please.

Why? They are giving you free money for your trouble (1.5-2% back, a proportion of the transaction fee they've effectively baked into the price of all consumer products) and offloading the risk of having your bank account drained through a debit card or getting mugged for your cash.

Time was you got tax relief on mortgage interest, and crucially there was enough inflation in the system that a mortgage was an insanely easy choice. A little inflation would deflate your mortgage payment down to truly trivial levels over the life of the mortgage. Because of the removal of inflation your mortgage payment is no longer an ever decreasing proportion of your income, ignoring pay rises, so the only remaining factor is what you believe will happen to rents.

Our credit score were upper good before and near perfect now. We've not used a credit card in eight years.

You can get a free copy of your credit report once a year from each major company - you could go ahead and order them just to see where you are at.

There are many reasons to use one. Others here have already given you some. But I want to add one more good reason: protection. So here you go:

- I try to pay for all restaurant meals with a credit card. Then, e.g. if I get sick eating at e.g. Chipotle, there's at least a record that I purchased something from them. If I lose the receipt I might not remember whether it was a taco or a burrito, but I'm still way ahead of someone who paid cash and doesn't have his receipt!

- If I have a dispute of any sort with the supplier, it really helps to at least have the threat of a credit card chargeback available. Too many disputes or chargebacks are bad news for vendors, and most will want to avoid those.

- Some cards will extend the warranty on a purchase, but I've never availed myself of that feature so I don't know how easy it is to use.

I've also used price protection with Discover. Also easy to use but they take a couple weeks to process the claim and mail the check (a third party processes it)

Price protection is pretty unique - not too many cards have it. If you find a lower price later on an identical item they refund the difference. I used it to get black friday sales before black friday.

Debit card?

The lender wanted to see loan with fixed payments in the past 3 years (which my wife had, a car loan). Sure, maybe we could have argued, etc. but a credit card paid off each month wasn't a magic bullet for building credit history. I'd say get a nominal loan (not simply a credit card) to build up credit.

"Not paying interest on any card" is desirable. "Not having any card" works against you in your situation.

These are all great reasons to have an emergency fund which covers the payments on all your debts (and your other expenses) for a few months. Then if you're in a situation where you need to use it, you can make a decision about whether to try to offload the debt or just pay it out of savings.

I'd take $20,000 in savings + $20,000 in debts any day over $0 in savings + debt free. Obviously you need to factor in interest rates, but with cash and debt you have options. With no cash and no debt you are screwed should anything go wrong. (Although the best is still cash + no debt).

That's not what an emergency fund is for. An emergency fund is for essential expenses, such as rent (or mortgage), food, prescription medicines not covered by insurance, and so on. If you are in the "I'll just use my emergency fund to pay off my debts in case disaster strikes" you've already lost the game.

20k amount financed on a car @ 2% for 48 months: $434/mo. Save that (in addition to your other savings) for 6 months, then finance the car. Then you can absorb a 6 month unemployment stint out of savings, during which you can downgrade at any point if necessary. Or you can wait an extra 42 months to save $827 in interest if that's worth it to you, but either way the risk is managed.

I think this is a good point, but the sort of people who would need a year to save $1200 do not have the sort of credit to get a 10% APR credit card, APR's closer to 20% or higher are more likely. Run the math again at 18% APR ($133 in interest over the 14-month payoff period) or even 24% ($185 in interest over the 14-month payoff period), and you quickly see just how much premium it costs to get that TV a year earlier.

I'm ignoring the negligible savings rate interest in your example and, probably foolishly, assuming this hypothetical person only has this single CC debt.

I feel like the issue isn't just the TV. It's that it's the TV, plus the next thing, plus the next thing. Or in other words, tiers of debt usage from best to worse: (1) completely avoid paying interest charges, (2) pay interest charges on large purchases with full knowledge and planning and in a responsible manner, (3) pay interest charges without knowledge of what you're paying or what to do about it.

Personally, I think it's a failure of financial literacy of the US educational system on one of the most important aspects of kid's lives. I have met incredibly educated people that are still ignorant about how credit cards/interest charges work and only internalized "Never use credit cards!" advice. I've also met less educated people who never think past "This is what it says the minimum payment is, so I pay that."

Neither position is good. And they. aren't. that. complicated.

The disclosure sheet gives you annual fee (if any), APR when interest is charged, and any penalties that may result in an APR adjustment. After that it's simply "If you have a >$0 statement balance from the previous month after your due date and payment, then you begin accruing interest on the daily total of your balance." Not rocket science.

I still don't get it. My credit card is a device by which my bank gives me some incentive (aeroplan miles, cash back) to put my transactions on a card and then immediately pay them off, instead of performing those directly against my bank account.

I feel that on a rational level, I understand the credit card companies' game, but more than that, I fear them and their power and intelligence.

Sure, I'd like to think I'm smart enough not to be tricked by them, but it's safer to avoid the deal with the devil altogether.

I'd only say two things in defense of credit card use (both valid in the US - not sure about other countries):

- Credit card companies are required to compile all of the information I mentioned into a fairly standardized form per the Truth in Lending Act (see: https://www.federalregister.gov/articles/2010/02/22/2010-624... )

- Credit card companies are competing for your business. At least with decent credit scores, it doesn't make sense for them to have unreasonable terms or try to screw you over

Get a no-annual fee credit card. Put it in your sock drawer. Take it out every 6-12 months and buy lunch with it. When you get home put card back in sock drawer and RIGHT AWAY pay off the amount you had for lunch on your bill. (You almost always can make payments on a zero balance. Citi was kinda weird about it but I make payments over my balance all the time and only Citi gave me a "can't pay over 20% of your balance").

Just having the card and not using it "counts" in your score. The lunch is just to keep the bank from marking your card as inactive and cancelling it.

If you feel you will be tempted to use it to increase your overall spending - then by all means avoid it.

My credit score according to Credit Karma is 811, which I think everyone could agree is very good. I just spot checked two of my credit cards, and they're both at about 16% interest. Now, maybe I could get a lower rate if I asked, but that's what they gave me by default. It doesn't matter to me since I never carry a balance (in fact, I didn't even know what the interest rate was; I had to go look). But 10% does seem pretty optimistic.

That said, I agree with the overall point. It should be acceptable to use credit in the situation described, as long as you're completely aware of the actual cost and are making a rational decision. Unfortunately, too few people do the math, and even for very educated and intelligent people, purchasing decisions can be irrational.

If you really pay off every months you want a 45 day carry before interest and cash back. But, they often have much higher rates.

PS: I have two one at 9% another at 12%, but the 12 has a much higher limit.

We've paid off Couches, A refrigerator, a new Sewer Drain, and several other things (a nice Kitchen Table most recently) this way. It's not as good as saving for it, and getting a few dollars of interest, but that's a marginal gain anyway.

Ultimately, these deals are subsidized by people who get charged with massive deferred interest payments because they don't plan properly, and that sucks for them, but as you say, it's a great way to start experiencing the benefits of a purchase instantly.

Even better is to use the financing opportunity on something that makes money. I've furnished apartments using 0% financing, and I'll get anywhere from 50%-100% increase on rental income for a furnished apartment - while paying no interest on the loan! It's like putting extra money in your pocket every month for free.

Indeed, and it's important to point this out to those who insist "Average Joe" doesn't benefit.

Three of the largest investments people will make in their lives are 1) their home, 2) their education and 3) their vehicle. All 3 are generally financed, and financing rates are at historic lows.

A quick look up says that Best Buy offers 11.9% APR for select purchases, or 25% for others.

There are plenty of high income earners who are just as irresponsible with spending as some low income earners. I always had a good credit score during the years it would have taken me a year to save $1200.

In scenario 2, you're stuck going to work for the entire 12 months to pay off a TV that will be obsolete by the time you finish paying for it.

Scenario 2 robs you of your choices, because you're making a promise of future labor. Scenario 1 leaves all your choices on the table.

For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television. Yes it's fatter than those newfangled flat things, but it doesn't watch me watching it, it doesn't record my conversations, and it doesn't report my viewing habits back to the mother ship. One day it will fail and I'll be forced to get a new one.

It's actually getting pretty difficult to buy a new "dumb" TV these days. The last TV I bought was in November 2014, it's a normal 50" Plasma screen TV with zero connected features. Some of my relatives liked the TV and asked me to find them one like it and I can't. Apparently TV makers have decided that making good TVs isn't important and packing them with smart features I don't want or need is the way to go.

That's the key point. Your TV is fine because it's old. New ones are built with planned and unplanned obsolescence (unplanned is when your "smart" TV loses half of its functionality because some service goes off-line or even changes their URL or something).

Video and Films are my business and my TV is a nearly 5 year old LG plasma that still performs great. And I only bought it because my ex kept the Panasonic plasma after the break-up or I'd probably be using an 8 year old TV.

Are there any reports of smart TVs not working completely (inputs stop working) because the "smart" connected features stop working?

But the person who bought the TV on interest is in debt, has less credit to live off of, and only a TV to show for it.

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In either case, saving up a pile of 6-months of expenses cash-on-hand is a good strategy. If you have 6-months of expenses saved up, you simply buy the TV with that money, and then in a year you put money back into your cash account.

Look, now you have the benefits of all strategies! Saving up money for emergencies, or even large expenses (LONG before you even think about those expenses) is the way to go.

Touching your 6 months emergency expenses fund is completely against the point. The reason you have this cash is for out of the blue, hit by bus kind of events. You need it when you least expect it

If you take your TV out of it you no longer have it - and this fund becomes nothing more than a general savings account. The kind of thing that drops low right after you buy a TV, or a car, which from my personal experience is exactly when bad things happen. And often bad things require cash on the barrelhead, not just credit cards.

So don’t do this. Either save in a slush fund for your TVº, or put it on a credit card, but don’t take it out of your emergency fund and still call it an emergency fund - 'cause it’s not going to be there for you in an emergency.

º or my personal favorite: a throw away, but named, savings account. (Like CapOne360, née Ing Direct, offers.)

A typial 6-month Emergency fund is somewhere on the order of $15k, depending on where you live. This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts)

http://www.fool.com/investing/general/2015/05/17/americans-a...

If you manage to have $15k, and you are making a big purchase, do use it before you start using a credit card. Now of course, if you have $15k "Emergency use only" PLUS $5k "discretionary", then yeah, spend the money from your discretionary account first.

Seriously? I feel like an old man. I had that much money saved in less than a year from starting my first part time coding job.

In fact the whole not saving money thing seems a bit strange to me. My monthly cost have remained relatively stable for almost a decade while my salary keeps going up.

Now if your heater breaks and requires replacement, that might be a reason to tap into savings.

But I recognize that I personally like to live on low expenses, lower than other people. For the spenders out there, even just saving up enough for an emergency fund is a big deal.

The important thing is that piles of money are a tool, as is credit (including credit cards). Use the tools as you see fit, but there are definitely "best practices". If you have a large pile of money (ex: Emergency Fund), it makes more sense to buy using that money rather than to dip into credit.

After all, you could always use your credit card in an emergency. Spending available cash first will be cheaper in the long run (as long as your spending habits remain in check)

And that's almost an entire month of savings.

Now, correct your rates with what's on the other replies, and we are suddenly talking about 2 or 3 months of savings. Just for getting that TV an year earlier.

Yes, that may be worth it. But almost always isn't.

I don't disagree with you, but until you provide some evidence this is just the opinion of some random stranger on the internet, and should be taken with a pound of salt.

If you don't have $1200 for a TV you shouldn't be buying it. It's not as if you can't buy a perfectly reasonable TV for much less is it?

Or at least, it's pretty common among the folks I hang with. The car-loan phenomena is baffling to me; why would you pay interest on a depreciating asset?

A five year new car loan from a credit union -- no shopping around -- has a cost of something like $58 / $1000 borrowed. So even if you have $20k cash on hand to buy a new car, for a thousand bucks you can maintain an extra $20k of liquidity for expenses that are more annoying or more expensive to finance, like auto repairs.

My native country has a central database of every single loan outstanding. Lenders have to consult that before granting a loan and stay within certain limits. So at least here, an outstanding car loan might disqualify you from a home loan because of a lack of solvability...

I took his point as: Some people buy an expensive car they can ill afford when they could buy a cheaper one that will do the same job.

Like my TV example, but with a car.

(UK figures)

https://www.gov.uk/government/uploads/system/uploads/attachm...

In 2014, 54% of all car first registrations were made by companies.

Which is lower than I would have guessed, but still significant.

Less common in Australia because they have (had?) a domestic market to protect -- import tariffs made it less attractive.

Tv don't enable you to get a better job/keep your current. If you want the argument to mean anything then you have to trade like for like. A nice couch will last years and it is still a frivolous consumer spending object. Is it worth it to pay ~80 usd to have the couch a year earlier?

> > > > Here's my argument.

> > > That argument's too weak.

> > Okay, here's a stronger version.

> No, you have to stick with the weak version.

Personally, I want to hear the strongest version of the arguments when I'm making a decision.

https://www.youtube.com/watch?v=PHe0bXAIuk0

It doesn't even have to be "not investments", it can be appropriately risky investments that just don't pan out (perhaps even systemically due to a "black swan").

There's inherent variation, ebbs and flow, in the economy that we won't ever be able to smooth. Booms and busts will occur because those on the credit margins always represent "going too far".

Does it show any evidence for that theory?

The only time I buy anything on credit is when it is zero percent on the terms and even then if I could buy it outright or save for it quickly.

It just is too easy to get in the trap of credit and reasoning it out is the first indication you have a problem. If its important save for it, if you cannot save for it get credit counseling