How Would Society Be Without So Much Credit?

[Rezzy7]

Given the much financial crisis lately, in which excess of consumer and commercial credit/debt has been involved, I am wondering how things would be different if people generally had to live within their means. Maybe there would be financing only for certain things, like your first home, or something (I'm making this up, so I don't know). So for the most part, if you couldn't afford it, you saved up for it (or put it on layaway!).

Any thoughts on how things would be better? Maybe worse? For individuals? Businesses? Governments?

[russianrocket]

Well, the Muslims are against credit, because their religion tells them not to. You can go check out how they are doing.

[Peterw]

After learning the hard way I now live like this and never want to go into debt again.

I think it should be mandatory to teach financial intelligence in schools and also the credit/debt industry to be regulated so that people can not live beyond their means to the proportions that were allowed to happen before the crash.

I remember being taken over my overdraft limit by bank charges every month causing more charges etc etc. The bank was charging me £35 every time - it was almost like they planned for this to happen..

[russianrocket]

Originally Posted by Peterw

After learning the hard way I now live like this and never want to go into debt again.

I think it should be mandatory to teach financial intelligence in schools and also the credit/debt industry to be regulated so that people can not live beyond their means to the proportions that were allowed to happen before the crash.

I remember being taken over my overdraft limit by bank charges every month causing more charges etc etc. The bank was charging me £35 every time - it was almost like they planned for this to happen..

They did plan for that to happen, because they know how people work, and you let it happen. No one pressured you into letting them over draft your account. You can opt out of that, or have the money go from your savings account. You chose to spend more money then your account had, and they charged you, rightfully so. You're choice, so no need to blame the bank, like they were out to get you.

This is coming from someone that also has over drafted his account pretty bad, fyi.

[Rezzy7]

Originally Posted by Peterw

After learning the hard way I now live like this and never want to go into debt again.

Good on you then.

- it was almost like they planned for this to happen..

Originally Posted by russianrocket

They did plan for that to happen,

Yeah, what do you mean "almost"? Banks know they make fortunes on all those fees.

You chose to spend more money then your account had, and they charged you, rightfully so. You're choice, so no need to blame the bank, like they were out to get you.

Hold on there, it's not always the customer's fault. For some reason recently my landlord cashed my rent check from the prior month way late. That resulted in me seeing the current month's check had cleared, which made it appear that I had enough to cover a purchase. Not knowing there was another month's rent yet to post, I ended up overdrawn for the first time in my entire life! ANNOYING! But I got the bank to reverse the fee, although it wasn't easy. They told me they'd only do it if it had been a bank error. (see video link below)

Overdraft "protection" was invented specifically as a cash cow for banks, all the while marketing it to us as something that is in our best interest.

YouTube - How To Get Back Overdraft Fees From Your Bank

[SrKen]

Can you read this? You qualify!
Bad credit, bankrupt? Loans guaranteed.

Persuasions and price gouging! Much of the credit rates charged to borrowers have been excessively high for years even while investment interest returns are historically low.

The credit market business is a great big fat, heavily marketed mean money making machine.

[russianrocket]

Originally Posted by Rezzy7

Good on you then.


Yeah, what do you mean "almost"? Banks know they make fortunes on all those fees.

Hold on there, it's not always the customer's fault. For some reason recently my landlord cashed my rent check from the prior month way late. That resulted in me seeing the current month's check had cleared, which made it appear that I had enough to cover a purchase. Not knowing there was another month's rent yet to post, I ended up overdrawn for the first time in my entire life! ANNOYING! But I got the bank to reverse the fee, although it wasn't easy. They told me they'd only do it if it had been a bank error. (see video link below)

Overdraft "protection" was invented specifically as a cash cow for banks, all the while marketing it to us as something that is in our best interest.

YouTube - How To Get Back Overdraft Fees From Your Bank

Why was that not the customers fault? That's still only because you didn't balance your check book. You should know how much you had in your account. I've done the same thing, and it sure as hell was MY fault : D

[Rezzy7]

Originally Posted by russianrocket

Why was that not the customers fault?

Because I did my part, but was duped by my landlord's unusual check cashing behavior, and by the account online. I checked the balance and the available balance; nothing was pending, and there was way more than enough for what I was about to spend. I looked to see that the rent had been accounted for, but alas, I was fooled...the check I saw was NOT the one I thought it was.

I've always found actual balancing to be mostly impossible. Besides it's moot because I monitor each transaction anyway to ensure the correct amount is posted. I deliberately leave a large balance to cover random stray transactions. This style has worked flawlessly for more than 25 years. But obviously, it wasn't enough for two rent checks plus the purchase I made, which I had no way to predict.

[firenexx]

Yes, balancing one's checkbook is a most essential task. If you assume that everyone you write a check to is going to deposit/cash it within the week, you are placing your risk of an overdraft charge in their hands. Not a good idea! My former roommate cashed my check for the power bill a few days ago - about 3 months late. Did this bother me? No, because I keep track of how much money is in my bank account.

That being said, there certainly are things wrong with the credit system, but in the end, it is the consumer's fault for living outside of their means. I live way outside my means. I'm not up to my eyes in debt, but I can see how easy it would be to get there.

[russianrocket]

Originally Posted by Rezzy7

Because I did my part, but was duped by my landlord's unusual check cashing behavior, and by the account online. I checked the balance and the available balance; nothing was pending, and there was way more than enough for what I was about to spend. I looked to see that the rent had been accounted for, but alas, I was fooled...the check I saw was NOT the one I thought it was.

I've always found actual balancing to be mostly impossible. Besides it's moot because I monitor each transaction anyway to ensure the correct amount is posted. I deliberately leave a large balance to cover random stray transactions. This style has worked flawlessly for more than 25 years. But obviously, it wasn't enough for two rent checks plus the purchase I made, which I had no way to predict.

Impossible? Money you have-money spent=money you can spend. Why is that impossible? You can't Blame anyone else for that. Even if you've managed not to not over draft for 25 years.

[Peterw]

It happened to me because I was completely irresponsible and knew exactly what I was doing. I'm not blaming the banks for anything apart from how they handled it.

I remember explaining them the situation I was in where I was at the end of my overdraft, missed payment charges were taking me over it each month causing more charges etc etc and that they needed to stop the charges so I could try and get on top of it. Their attitude was one of "Sorry mate - the charges apply because of XYZ blah blah - there's nothing we can do.. etc"

It was their business model to keep me in that situation as long as possible paying as much as possible - regardless of what I was going through.

Well now I'm out of debt and making lots of money - and keeping it in a different bank. W@nkers still keep sending me credit card spam though...

[Rezzy7]

Originally Posted by russianrocket

Impossible? Money you have-money spent=money you can spend. Why is that impossible? You can't Blame anyone else for that. Even if you've managed not to not over draft for 25 years.

I'm not faulting anyone, but it sure wouldn't have happened if my landlord didn't pull that trick. It was impossible because the available balance was always in constant flux with no way to know which checks had cleared before which other checks. It was a non-issue unless I was going to spend near the amount that was in the account, which never would have happened. This was before the internet, anyway, things are much simpler now, because the info online is accurate and transactions show up right away. Why you bustin' my chops on this, anyway? We're off topic and the only important part is the bank reversed the fee.

Originally Posted by Peterw

Their attitude was one of "Sorry mate - the charges apply because of XYZ blah blah - there's nothing we can do.. etc"

It was their business model to keep me in that situation as long as possible paying as much as possible - regardless of what I was going through.

Well now I'm out of debt and making lots of money - and keeping it in a different bank. W@nkers still keep sending me credit card spam though...

Yeah, the bankers are told to say they can't do anything. At my bank I found out it's at the discretion of the branch manager. Obviously though, no one is likely to get a free pass more than once.

Good plan staying debt free! Same here. Does it seem like a big relief? I keep getting those teaser-rate, balance-transfer offers in the mail...but I have no balance to transfer, anyway!! Even if I did I'm not willing to pay the 3% fee.

[C Brown]

I certainly would be much better off.

If I could trade back my $28000 degree back, I certainly would. It only gets me a 10/hr job. And a 2nd mortgage on a house I don't own anymore, and they were pissed I wouldn't give them my truck title to secure the loan. Yes, I spent the money, I take responsibility, but its also their responsibility to lend to credit worth individuals, of which at the time, I was not, not for the 1st or the 2nd.

[180]

I think America has this persuasive credit disease.

It's caused by our inability to plan. We've instead, embraced short sighted behavior. Socially and culturally, Americans are stupid. We've time and time again shown we have a poor ability to plan and operate on an aggregate scale. We've hugged Keynesian and smith economics, and smoldered individualism and irrational exuberance.

This isn't necessarily bad, but looking at our current debt ceiling crisis there's no way to avoid blame.

Lest, not mention the fact that we also don't take responsibility. Our public blames and blames and blames but doesn't take responsibility. It's never "we" got into a debt crisis. It's more like "the american government" got us into a debt crisis.

Anyways, borrowing on credit is clearly an impulsive thing to do. Sometimes it's necessary but even then most times I would argue it's still not. Lots of People don't borrow on credit to feed their family the bare essential foods. Most people borrow on credit to buy cars, tv's, and other **** they don't need. College students run up huge credit card bills.

Borrow now pay later is a clear sign that we don't have financial discipline. We just don't. We know how to spend and buy.

[Peterw]

Originally Posted by Rezzy7

I'm not faulting anyone, but it sure wouldn't have happened if my landlord didn't pull that trick. It was impossible because the available balance was always in constant flux with no way to know which checks had cleared before which other checks. It was a non-issue unless I was going to spend near the amount that was in the account, which never would have happened. This was before the internet, anyway, things are much simpler now, because the info online is accurate and transactions show up right away. Why you bustin' my chops on this, anyway? We're off topic and the only important part is the bank reversed the fee.

Yeah, the bankers are told to say they can't do anything. At my bank I found out it's at the discretion of the branch manager. Obviously though, no one is likely to get a free pass more than once.

Good plan staying debt free! Same here. Does it seem like a big relief? I keep getting those teaser-rate, balance-transfer offers in the mail...but I have no balance to transfer, anyway!! Even if I did I'm not willing to pay the 3% fee.

It feels great! I looked forward to it for 6 years and now I feel I can finally live my life

[180]

Originally Posted by C Brown

I certainly would be much better off.

If I could trade back my $28000 degree back, I certainly would. It only gets me a 10/hr job. And a 2nd mortgage on a house I don't own anymore, and they were pissed I wouldn't give them my truck title to secure the loan. Yes, I spent the money, I take responsibility, but its also their responsibility to lend to credit worth individuals, of which at the time, I was not, not for the 1st or the 2nd.

Currently there's a lot of talk about the entire privatized educational system as a "scam". The average student walks away with 30,000 in debt from a four year college but is it not that more suited for the average paying job in America. Granted a 4 year degree helps, but when 60% of undergrads from Harvard U. cannot pass the 60k wage ceiling, it begs a lot of questions about the authenticity of having a college degree in getting a job.

Personally, I've found that going to a Tier 2 college hasn't helped and would have never helped me if instead I went to a state college and saved 50k in debt. Getting an expensive degree was one of my worst choices. The education itself is valuable but not the degree. It's merely a flimsy piece of paper that I flaunt, and then shuffle behind my set of books. It's worth about as much as toilet paper in getting me a job. Everywhere is about "experience".

Also about responsibility. I hear you. Someone I know has 10k worth in CREDIT card bills. CREDIT. 25% APR. Not to mention a mortgage of $2600 a month? It's partial individuals to blame but it's society as a whole not educating people about finances. Look at the public school system. Not a single class tells people how to manage their money which is the most important thing in life. I know about the civil war, which maybe is the most useless trivial piece of knowledge I'll ever know, but the average person aren't warned about the changing interest associated on credit card or mortgages which can lock them in debt.

I, my parents, and all my friends are locked in this forever rat race of debt. I've managed to find a way out, but it will take 5 dedicated years of saving to pay it off. But that's assuming I don't pay a dime towards having a car or family.

I feel bad for America I really do, and while I said we should take responsibility, I think we should do something about our education system and how we teach our kids about this stuff. I don't mean "finance" courses and learning about stocks (which is another form of gambling) I mean learning how to NOT invest in things that lose money. Cars, clothes, etc.

[NoJobRob]

This is a difficult question for me to answer. Credit, when used responsibly, can be a good thing, but there are consumers, and creditors, who act unethically. I think credit should be made harder to get personally. There are lots of people who take out loans they'll never be able to repay, and it's both their fault, and the lender's fault. Predatory lending does exist. Credit card companies make most of their money from late fees and interest, so contrary to their tone with their customers, they're actually glad when people fall behind because that's the bread and butter of their profit margin. I remember hearing a term they used for people who pay on time, I can't remember what it was, but it wasn't a good term. LOL I'll see if I can find it.

Personally, I like not using credit. It's there if I need it, but I don't need it. I'm not a slave to my bills, and nothing I own can ever be repossessed, because I actually OWN it. I live life on my terms, not anyone else's.

Edit: I think that'll be my slogan for my start-up hedge fund that I'm going to start down the road. Live life on your terms. I think it has a nice ring.

[Rezzy7]

Thanks for the comments, everyone...

Originally Posted by SrKen

Persuasions and price gouging! Much of the credit rates charged to borrowers have been excessively high for years even while investment interest returns are historically low.

It's like they found a good way to make serious money, and kept raising and raising rates to see what people would tolerate. Turns out, enough people tolerated what amounts to highway robbery! I don't even think CASINOs earn that kind of return!

Originally Posted by firenexx

in the end, it is the consumer's fault for living outside of their means. I live way outside my means. I'm not up to my eyes in debt, but I can see how easy it would be to get there.

Most people seem to live far beyond their means. Everyone wants everything. If they don't want it, if they see someone else with it, they want it! Now! Regardless of the actual cost of the item plus financing fees! Some people feel pressured to "keep up" with other people.

A lot of people equate the ability to borrow huge sums with being rich!

I have always lived within my means because I noticed what happened to people near me who didn't, and knew I absolutely didn't want the problems they sometimes ended up with! Even then, it would have been so easy for me to go overboard, too. When you live within your means, and everything gets paid on time, they raise your credit score and offer you more credit!! Which we all know is simply to tempt you into carrying a high, long-term balance.

Originally Posted by C Brown

If I could trade back my $28000 degree back, I certainly would.

Yeah, I hear you! Friends of mine have the same situation. Student loan debt gets to be a bigger problem than lenders let on. For some it is worth it, though, and they're able to find employment that pays enough for them to be ok. For most that debt lingers for decades. Makes it tough.

Originally Posted by 180

I think America has this persuasive credit disease.

It's caused by our inability to plan. We've instead, embraced short sighted behavior.

Well, planning requires...er...planning. Plus, smart thinking, and besides, no one wants to take time out to plan, much less wait until the plan comes together! Waiting is unAmerican!

Sometimes it's necessary but even then most times I would argue it's still not. Lots of People don't borrow on credit to feed their family the bare essential foods. Most people borrow on credit to buy cars, tv's, and other **** they don't need. College students run up huge credit card bills.

Yes, though there are a lot of people using credit to buy groceries, now! So many lost jobs, sometimes both spouses lost their jobs, and having never done it before, had no idea how to lower their spending habits and live within their means.

Originally Posted by 180

Currently there's a lot of talk about the entire privatized educational system as a "scam". The average student walks away with 30,000 in debt from a four year college but is it not that more suited for the average paying job in America. Granted a 4 year degree helps, but when 60% of undergrads from Harvard U. cannot pass the 60k wage ceiling, it begs a lot of questions about the authenticity of having a college degree in getting a job.

Wow, scam? That's serious, yet I think it is possibly correct. An education is extremely important, but the promise degrees supposedly offer, I think, has always been somewhat bogus. It seems the whole system is problematic.

The education itself is valuable but not the degree. It's merely a flimsy piece of paper that I flaunt, and then shuffle behind my set of books. It's worth about as much as toilet paper in getting me a job. Everywhere is about "experience".

But c'mon, it's "impressive" to be able to say you graduated there! Right? That doesn't count? Kind of like it's impressive when someone's driving around in an expensive car (which no one knows is actually owned by the bank!). We're all impressed by a person's car, right? </sarcastic rant> (sorry if my jesting makes it worse, though.)

It's partial individuals to blame but it's society as a whole not educating people about finances. Look at the public school system. Not a single class tells people how to manage their money

It would be great if responsible handling of money could be taught on some level, even just a mention of it might stick in the back of kids' minds and help later in life.

I was lucky, the school I attended touched on the subject and it did stick. Then later when I worked briefly in the credit industry I saw 1st hand what was happening to good, hard-working people. On the positive side, I also saw how beneficial the responsible use of credit could be, and, luckily, took that route. (And it wasn't easy!)

I've managed to find a way out, but it will take 5 dedicated years of saving to pay it off. But that's assuming I don't pay a dime towards having a car or family.

Kudos for at least having made a plan. I know it sucks having to do this (really, not even a dime?! NO! not even a dime!), but it's worth it to be as debt-free as possible. I was there, throwing thousands of dollars towards my balances every month, and when it was over it was like getting a raise! But you have to be sure not to just go out and re-spend again! haha. That might be the hardest trick!

I don't mean "finance" courses and learning about stocks (which is another form of gambling) I mean learning how to NOT invest in things that lose money. Cars, clothes, etc.

Yes. This is a big challenge. Seems each generation becomes more materialistic than the last, and kids seem born now with this huge sense of entitlement... every kid has to have certain clothes, shoes, iPods, iPhones, unlimited wireless and Internet, 360, PS3, Wii, and "cable" tv. And who perpetuates the mentality? Parents! lol. But I can't really talk because I don't have kids, but maybe that's better because I can see it happening from the outside perspective the parents don't have.

[Peterw]

During the bubble that lead to the 2008 crash the whole culture was completely out of control.

It was accepted as normal buy on credit and think about the consequences later, I remember going to investment 'seminars' (the free ones where the speaker would pitch an expensive course at the end and give you a discount if you put down a deposit on the day ) where they were talking about no-money-down real estate deals or putting up the deposit from a credit card...

People just thought prices of property and stocks were just going to keep going up and up and up forever...

When I got into so much debt I knew full well I'd have a mess to sort out down the line, luckily now it's gone but for a lot of people the crash happened, lots of people discovered they had these mountains of debt and suddenly jobs and incomes were getting slashed all over while the price of living went up.

I hope the banks and authorities and regulators learn from it - but they probably won't and it will happen again no doubt. I intend to be positioned to make a killing out of it on the way up and on the way back down

[ZephyrusX]

Oh, I only skimmed the thread, so I don't know if someone brought this up. Some people from lower-socioecnomic conditions will use what credit (or cash advance services, like Money Mart) they have just to get by. I once had to use my credit card to pay off my rent as I was short by a good 400 or 500 dollars. But from that sub-population, there is another sub-set of people who just fall into a vicious cycle of needing cash advances and having to pay the ridiculous user fees. It is not pretty. Luckily, I never fell into that cycle though. I was able to pay off the credit card reasonably quick (though I'm at my limit again ). Some cash advance services (I.E Money Mart) in Canada got into legal trouble for 'predatory' behaviour as their interest rates were something ridiculous... like... 300%?

[Rezzy7]

Thanks for the replies.

Originally Posted by Peterw

During the bubble that lead to the 2008 crash the whole culture was completely out of control.

It was accepted as normal buy on credit and think about the consequences later,

Yes. It had gotten out of control long before, but it was somewhat "managed". For years people were able to rely on job security, which pretty much dissolved. New ways of "lending" and new types of "investments" were invented that lead to an insanely huge and risky bubble.

People just thought prices of property and stocks were just going to keep going up and up and up forever...

True of most bubbles. And heavily perpetuated by outright lies in certain industries for maximum money-grab before it all collapsed.

I hope the banks and authorities and regulators learn from it - but they probably won't and it will happen again no doubt. I intend to be positioned to make a killing out of it on the way up and on the way back down

Banks and regulators? I don't know about...they're probably looking to maximize profits at any cost. But I think some consumers have had a big slap in the face about their price they pay for their own debt, spending habits, which has awakened them to the reality and potential hazards of too much debt. Not everyone, but some.

Originally Posted by ZephyrusX

But from that sub-population, there is another sub-set of people who just fall into a vicious cycle of needing cash advances and having to pay the ridiculous user fees. It is not pretty. Luckily, I never fell into that cycle though. I was able to pay off the credit card reasonably quick (though I'm at my limit again ). Some cash advance services (I.E Money Mart) in Canada got into legal trouble for 'predatory' behaviour as their interest rates were something ridiculous... like... 300%?

Yes, it's the same in the US. The amount those places charge is insane, and, even if the people who go there actually read the fine print, there's not much they can do about it because, like you described, they're kind of in a tricky situation with no other alternative. It's kind of nuts that that type of profit was ever allowed. But then, it's nuts that real estate lenders were able to get away with the type of loans they "approved".

[Acting Like Godot]

Originally Posted by firenexx

Yes, balancing one's checkbook is a most essential task.

Not in every part of the world.

Where I come from, you can keep zero balance in your current (or checking) account. Whenever you write a cheque, and it is cashed, the bank then automatically transfers money out of your savings account, and into your current account, and then pays the other side.

[russianrocket]

Originally Posted by Acting Like Godot

Not in every part of the world.

Where I come from, you can keep zero balance in your current (or checking) account. Whenever you write a cheque, and it is cashed, the bank then automatically transfers money out of your savings account, and into your current account, and then pays the other side.

"balancing ones checkbook' doesn't have to mean, literally a check book. It just means, balancing the money leaving, with the money that is in, or coming in. Just because you have no money in your checking account, doesn't mean you can't balance a check book, when in reality, your savings and checking just becomes one.

And even if you didn't have any accounts, and just kept cash in a shoe box, you'd still need to balance that too.

You can do that anywhere you live, just by having over draft protection, where they draw money from your savings account if you don't have enough. But there is no point of that, unless you have some amazing savings account earning you a lot of money.

[Acting Like Godot]

No, you miss the point.

The point is -

1. You never get charged for OD, when you actually have money in your savings account

2. You never get charged any fees either, if your savings account does not have enough money. Instead your cheque simply bounces.

[russianrocket]

Originally Posted by Acting Like Godot

No, you miss the point.

The point is -

1. You never get charged for OD, when you actually have money in your savings account

2. You never get charged any fees either, if your savings account does not have enough money. Instead your cheque simply bounces.

The same thing works here, if you have money in savings, you don't get charged over draft.

but, if you don't have money in your savings account either, and your check bounces, you get charged a returned check fee. Which is the standard procedure in the industry.

I'm not entirely sure what point I missed?

[moonrambler]

I think the point is that people who have plenty of money don't need to waste their time balancing their checkbook.

[russianrocket]

Originally Posted by moonrambler

I think the point is that people who have plenty of money don't need to waste their time balancing their checkbook.

I dont recall him saying that.

[moonrambler]

Well, there's also the point that in some parts of the world, banks don't charge fees for overdrafts, but I would think the business that got stiffed might charge a fee or two, so in that case, a person would need to balance the checkbook if they don't have plenty of money in the checking or savings account.

Otherwise I don't know what the point is either.

[Acting Like Godot]

Originally Posted by russianrocket

but, if you don't have money in your savings account either, and your check bounces, you get charged a returned check fee. Which is the standard procedure in the industry.

Oh. That's not standard procedure in the industry in my part of the world.

If your cheque bounces, the guy who tried to cash your cheque is told to "Refer to Drawer". That is, he should speak to you and find out what happened.

There would be no additional bank charges for anybody. The scenario is exactly the same as the one where you wrote an invalid date (eg at the start of the year 2011, some people may absent-mindedly write a wrong date "4th January 2010" when they meant to write ""4th January 2011").

[Acting Like Godot]

Originally Posted by russianrocket

But there is no point of that, unless you have some amazing savings account earning you a lot of money.

Conventional personal financial planning says that you should have about six months' worth of your average living expenses, in cash savings or money market funds.

The rest of your money then gets invested in funds, bonds, stocks, REITs, ETFs, equities. (And your insurance needs should all be addressed).