Yesterday WalletPop posted 10 Dumb Reasons to Take Out a Loan. Oh, how I like list posts. Ideas homogenized into orderly little chunks. It’s like blog dim sum. Or sushi. Or maybe Chicken McNuggets.
I am too much of a fussbudget not to point out that three of the listed items are not dumb reasons to borrow but dumb ways to borrow. Still, I think I can come up with ten easy-to-digest responses. Here goes.
1. Buying a Timeshare. I have to agree that buying a new timeshare, that is, from the developer, is probably always a bad idea. (On the other hand, buying one used, from some other sap who bought new and now will take any reasonable offer, sounds like an interesting idea to me. I’ve never done it.)
But does borrowing the money to buy a timeshare make it worse? I don’t see how. Indeed, once you set aside the foolishness of buying the thing, a loan to do it seems quite reasonable. The developer may provide financing on special terms and I think that under some circumstances the interest is tax deductible.
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Time to circle back and discuss the cards, credit and debit, again.
If you are just joining us, I will recap. Debit card transactions now outnumber
credit card transactions in America. Frank doesn’t get it. He has used a debit card maybe three or four times in his life. Although he can imagine several special cases in which a debit card would be preferable to a credit card for a person, he can’t wrap his head around the idea that the majority of people fall into those categories.
Wise Bread today ran a feature comparison of credit versus debit cards. Debit cards did not fare well in the head-to-head, besting credit only on the “Which is better for avoiding credit card debt?” criterion.
This, by far, is the strongest argument in favor of the debit card. If it helps you control your spending and helps you avoid credit card debt, then that one feature alone is as precious as gold. If you currently have credit card debt or are trying to get out of credit card debt, then cutting up the credit card and using a debt card is probably one of the smartest decisions you can make.
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It has been months since I last shared confusion over the way everybody else uses credit cards. Today I am back at it.
Over the weekend the New York Times had a report about a new feature
being rolled out by MasterCard and Citigroup. (By which the Times means Citibank.)
The service, called inControl and already in use by some Barclaycard holders in Britain, is a sort of financial chastity belt that offers the potential to prevent a variety of budget sins and other money traps.
Worried about your restaurant habit? If your bank adopts MasterCard’s service, you could tell it to have your debit or credit card reject any restaurant purchase above whatever monthly cap you set.
I must admit I do like the name of the product. “inControl” neatly implies that without it you would be “outofControl” and I think that if this service appeals to you that is likely true.
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From CreditCards.com comes the news that U.S. credit card agreements are unreadable to 4 out of 5 adults. It is not that they are written in invisible ink, or tiny print, or even that they are hidden away in the deep recesses of some
web site. The agreements are printed in easy to see black and white and mailed to the card holder’s house.
Are they in Latin? Do they involve obscure legal terms? Perhaps they are poorly translated from some foreign tongue?
No, they are unreadable to 4 in 5 Americans because those sneaky credit card companies have written them in standard English, but at a 12th grade level. Bastards.
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In certain circles there has always been plenty of discussion of credit reports and scores. But since the Great Recession, interest in the topic has grown to the verge of mainstream consciousness. Ordinary folks now routinely consider the
credit score impact of their actions, including such esoteric issues as the undesirability of closing unused credit card accounts. (It increases the ratio of used to available credit, which is bad.)
But through all this it seems as if the underlying point of credit scores has been lost. It is not a game with arbitrary rules meant to keep consumers on their toes. Nor is it a measure of virtue.
If you are in the business of lending money, what you want to know about a potential borrower boils down to a simple question: will this person pay me back? Credit scores do nothing more than give a probability that a borrower will make good, based primarily on his history of paying other people back, but also considering such measures of financial stress as how many times he has asked for a loan recently and the credit lines to credit used ratio mentioned above.
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I am too much of a fussbudget not to point out that three of the listed items are not dumb reasons to borrow but dumb ways to borrow. Still, I think I can come up with ten easy-to-digest responses. Here goes.
Credit Cards, PF Blogs | Frank Curmudgeon | 
September 29, 2010 12:29 pm | 
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