Credit Card Balances

[LivingAlmostLarge]

So within the last few days I've been in sticker shock. I had two different friends just in passing mention their credit card balances. Neither thought it was a big deal. And neither seemed worried about it. One said "oh yeah we owe $18k this month." No excuses or saying it's an usually high month. It was just yeah we spend that much a month. I nearly fell over. I don't know if it's monthly or not just accruing but my suspicion is it's monthly since the same friend said they owed like $50k this summer. And yes they paid it off by selling their stock bonus the wifes said there went their stock bonus. They had to sell it to pay off the credit cards.

Another friend today was like "oh yeah my husband is like our bill is $25k we should probably sell some stock and pay it off." I nearly again blinked and fell off my chair. I totally get people make a lot of money. I also understand that people carry credit card balances. At the same coffee table discussion another friend said "yeah we're spending more than we're making but the bonus is coming soon to pay for the credit cards."

But people don't really charge that much in a month? They don't just let it rack up? i thought most people get into some debt and the interest is what causes it to snowball. And the high balances come from having multiple cards?

Is this real? I finally understand why a friend laughed at me when I said we don't carry a credit card balance. She said no way do we live like that. I don't think I'm that weird, but again we've never had those type of months of spending. I've never paid a 5 digit credit card bill. I swear the highest is like maybe $7k and it's paid off monthly. I can't imagine seeing the number just going up and not freaking out when it's above $10k.

Do people really spend like this?

[kork13]

I have no doubt that they're spending along those lines. It may still be accrued spending (ex: the one friend had $50k this summer, but maybe paid it down to $18k right now) .... But in any case, yes that's absolutely mind-boggling to most. However, I also understand that you live in fairly high-income circles. When you're earning $500k/yr (or more), it's very easy to see $10k/mo or even $20k/mo in spending as reasonable. Sure, the take-home after taxes on $500k is probably closer to $300k/yr ($25k/mo), but even still, to someone who doesn't pay attention, those numbers seem fine. It's all about mindset. When I was 22y/o grossing $40k/yr, the idea of spending even "just" $2k/mo on random (non-essential) expenses would be insane. Now, we earn 5x that, and that same $2k/mo is low-to-average for us -- only at $4k-$5k does it start to feel like alot.

Honestly, I've come to the point of thinking you just have to love 'em where they're at. Most people are set in their ways, and nothing we say is going to change their mind. So it's not worth the emotional energy to worry about others' situations if they aren't asking for help.

[bjl584]

I hope they are reaping lots of reward points.
I've basically sworn off credit cards. I'm pretty much exclusively using cash and debit for everything.
Even if I had a super high income, I think a $25K credit card balance would keep me up at night.

[disneysteve]

I hope they are reaping lots of reward points.

It doesn't matter. Most reward cards pay 1-2%, up to 5% for certain categories, but credit card interest is typically in the 19-29% range.

[bjl584]

It doesn't matter. Most reward cards pay 1-2%, up to 5% for certain categories, but credit card interest is typically in the 19-29% range.

Under the assumption that you charge 25K per month and pay off the balance, then the rewards become pretty appealing.

[disneysteve]

I don't think the situations you mention are unusual at all. Many, many people live way beyond their means, and it isn't just people with lower incomes. A lot of people earning 6 figures report in surveys that they are living paycheck to paycheck. The mindset is "If I can afford the payments, I'm good."

There's absolutely nothing wrong with spending 10-20K/month. We do it ourselves. But we are 100% debt free. No credit cards. No car loans. No mortgage. And a $3 million+ portfolio. If I stopped working today, we could continue to spend 10K/month for the rest of our lives without an issue, not even counting Social Security which we're eligible for in 2-3 years.

When people I know say stuff like that, I usually just keep my mouth shut. Nothing I say is going to change their mind about how they're choosing to live their lives. I just hope for their sake that the house of cards they've built doesn't collapse because one partner loses their job or one of them gets sick and can't work (or dies).

[disneysteve]

Under the assumption that you charge 25K per month and pay off the balance, then the rewards become pretty appealing.

Absolutely, but that's not what LAL was talking about. She's referring to people carrying large balances. I'm all in favor of charging every penny you can to a rewards card and paying it off every month. That's exactly what we do.

[myrdale]

It occurs to me that not only are these people building debt, but they are presumably not building any savings. These people are "normal" for most of America. Unfortunately "normal" is pretty bad.

[bjl584]

It occurs to me that not only are these people building debt, but they are presumably not building any savings. These people are "normal" for most of America. Unfortunately "normal" is pretty bad.

I see this story played out on the Dave Ramsey show all the time.
Couples earning $250K or more per year but with tons of debt and no savings or investments.
They have no idea where the money even is going in most cases.

[jenn_jenn]

There are plenty of people that make a lot of money ($500k/yr +) and spend all of it. I know several of them.

I just don’t concern myself with what they’re doing. I don’t want that lifestyle. Sounds stressful as heck.

[ua_guy]

Oh, long time ago, my husband and I carried 20-25k on cards. We were young and dumb. A lot of needed home repairs went on there, plus our usual playing, and paid off a motorcycle with a credit card check for the free balance transfer and intro APR.

That was about the time I started engaging more around this forum

No balances today, and haven't carried any balances since then. That was also back when a low rate on a credit card for excellent credit was around 7%, sometimes less? Now with some of these cards with rates 20%+, carrying a balance is playing with fire!!

[myrdale]

We were young and dumb. A lot of needed home repairs went on there, plus our usual playing, and paid off a motorcycle with a credit card check for the free balance transfer and intro APR.

I don't think anyone can be faulted for using credit to pay for needed home repairs.

For the motorcycle, it may have made sense if the rate was lower.

I really wouldn't put either of those in the dumb category.

[LivingAlmostLarge]

It's incredible though that you can see a super high balances and not be worried about it.

[docstudent]

• It really comes down to job security and things like bonuses, which is foreign to most people. I have a cluster of friends that receive year-end bonuses. From their standpoint, they will always get one, but it fluctuates in value….one friend said, we will get a minimum of 30K and the typical max is 70K, so when they plan a lavish trip, it will be covered on the backend. His experience is based on over 20 bonus cycles with this company.
  
  I think that really impacts how his family spends throughout the course of the year. People do very interesting things with their money and they seem to being the things that make them happy.

[disneysteve]

• It really comes down to job security and things like bonuses, which is foreign to most people. I have a cluster of friends that receive year-end bonuses. From their standpoint, they will always get one, but it fluctuates in value….one friend said, we will get a minimum of 30K and the typical max is 70K, so when they plan a lavish trip, it will be covered on the backend. His experience is based on over 20 bonus cycles with this company.
  
  I think that really impacts how his family spends throughout the course of the year. People do very interesting things with their money and they seem to being the things that make them happy.

I can understand that even though it's foreign to me. For us, if we even get a bonus, it's a few hundred or maybe a couple thousand dollars. Not enough to alter our overall spending plans. But I know people who work on Wall Street and their bonuses can be well into 5 or even 6 figures. It's a significant chunk of their annual compensation. It's kind of hard not to include that in your plans even without knowing the exact amount in advance.