How many of you have paid off your home?

And now that I have the Prius paid off, I refi'ed to a 5 year mortgage, so I will have it paid for in 10 years total.

 

While this sort of psychology may work for people who lack the discipline to manage their finances rationally, it is just a psychological motivator. The strategy still results in their paying out more money in interest. More rational, mainstream advisors still recommend paying off the highest-interest debt first, to reduct the total cost of becoming debt free.

A rational person does not care about the number of bills, but rather about the total amount of debt. And structures that debt for the lowest interest rate.

If your guy was a doctor I'd call him a quack.

 

There is really no "one correct" strategy. It all depends on your personal financial situation, skill set (if you lose the job can you find another quickly), risk tolerance, discipline etc.

My strategy has been to be able to live on one person's income.

As for credit cards - I laugh when people say don't use them, pay all cash. I get quite a bit of cash back every year (and have never paid a penny of interest on them) - why would I use cash instead of CC ? I guess most of the "personal finance advisors" are used to either helping out people with debt problems (i.e. insolvent) or people with very high net worth (i.e. rich).

 

All you guys and gals who have paid off your homes, or are taking aggressive steps to do so, are heros and heroines in my book. I am proud to know you. Keep it up - you'll be very glad you did.

 

Bill Gates? Alex Rodriguez? It's not hard to live on one person's income, you just have to find the right person.

Tom

 

If your cash back exceeds your extra spending from using a credit card vs cash, then you come out ahead. But various studies show that most consumers spend more when their hands hold plastic instead of green paper money. Compared to that difference, the cash back is negligible.

This is a point of contention in my household. I use plenty of cash, DW complains when I don't put things on credit card, because we are losing cash back and mileage points. But I can see the above phenomenon is actually happening.

 

On that topic, it bugs me that credit card users get cash back at the expense of cash paying customers. The credit card companies are running a scam and should be called on it.

Tom

 

I'm running into more places that are telling the credit card companies to stick their same-price rule where the sun doesn't shine. Discount for cash, or surcharge for plastic.

 

I believe the point is to not use them as vehicles for borrowing, due to their usurious interest rates.

ound:

Yep, the "same price" rule is a screw. The cc companies convinced merchants that accepting cc's would bring in customers, due to the convenience and the credit, and that conversely they would lose business if they refused to accept the cards. The card companies make money off the usurious interest rates and by charging the merchants a percentage.

In a lot of foreign countries there are huge surcharges for using a credit card.

The cash back and other bonuses are just one more salvo in the credit war, to get people to use the cards and to patronize merchants who accept them. The card company charges the merchant 3% and then gives you 1%. Guess who pays the other 2%. You do!

But it's all just the free market. Nobody forces merchants to accept the cards or consumers to use them. The banks have figured out how to play us off against each other. And cards are convenient. I used to have to go to the bank to cash a check every week so I'd have cash. Now I can just use plastic. We pay for the convenience. The fact that people who don't use them are paying also (because of the same-price rule) is also just part of the free market: It's the redistribution of wealth from the poor to the rich, which is the whole purpose of capitalism.

 

You answered your own question in the first three words of the second paragraph. A rational person. This is NOT targeting rational people. This is targeting people whose idea of long-term financial planning is buying lottery tickets. For THEM, this makes sense. Four debts are better than five, even if one of them has a higher interest than the one they just paid off.

 

That was part of the pitch, but at least in Israel (where I was around to see plastic introduced), the merchants saw plastic as a way to decrease check fraud and bounced check costs.

 

The cost of processing financial transactions has got to be paid by some mechanism. Credit Cards allow electronic transactions, enable consumer fraud protection, and allow the sensible to have the undisciplined to pay a greater cost. The key for lowering credit card costs is to enable competition between companies.

 

And regulation, to force competition between companies.

Tom

 

Totally agree. In fact, it's regulation that provides the fraud protection, not the good hearted decision of the credit card companies.

 

I was in retail for 30 years - small operation, one location. In the early years, the merchant rate was much higher, but not as high as you may think. When I switched careers in 2001, the Visa/MC merchant rates were 1.72% with "free" supplies, including the thermal tape and phone charges - down a point from the 70's. Discover was 1.9% plus 10 cents per transaction. Never took AmEx as their merchant rate at the time was still 3.25% plus whatever else they might have charged.

Larger business were/are paying lower than 1.5 points, and as low as about 2.5% for AmEx transactions. There used to also be points charged to the merchant for customers using their CC's in debit mode. That practice, AFAIK, has mostly vanished.

I will agree that credit cards are largely unnecessary. Most all of what AmEx charges the customer in yearly fees is highway robbery. After I cut up my own AmEx card, the junk mail count dropped by 70%. I once went to use my Discover card and the merchant was told to cut up the card. What had happened was that I hadn't used that card in over a year, and they thought that the purchase was fraudulent due to account inactivity or that I must be dead. Nice. I have two cards only now, and use one almost daily, at work to buy food. Because of that usage, the bank gives me 0.00000000002% more interest per month.

 

I've always got money back from Amex - not paid a penny.

BTW, I've lived in places where they wouldn't take anything but cash. Trust me it is not that great. For one thing, cash transactions help develop a large black economy. Personally it is a major hassle to carry around cash (and lose it to a pickpocket or get mugged).

Most of what I shop now is online. I definitely prefer paying thr' CC/Paypal.

As to the claim that I'd shop less if I were to only pay in cash - that is probably true. I won't be able to buy a lot of things online. I would have been less happy knowing I can't buy a lot of things I wanted. I would have also paid a lot more for certain things if I could only buy them at B&M. Infact I wouldn't have been able to reserve my Leaf