[munificent]

I wonder if there's a death spiral there:

1. Economy gets worse and some people are no longer able to keep up with their credit card payments. They default.

2. Credit cards increase rates to compensate for the increased risk since a greater fraction of their users are failing to pay.

3. People who are financially stable and literate see the increased rates and put fewer things on credit.

4. The remaining pool of people using credit now has an even greater fraction of people who aren't financially solid.

5. Go to 1.

[gizmo686]

I think the death spiral breaks at step 3. Financially stable and literate people do not pay credit card interest. They pay off the full balance every month resulting in 0 interest payments. In cases where they need credit beyond the short term float the above gives you, they have access to lower interest loans.

These people also don't make the cards much money, so loosing them wouldn't have that much of an effect anyway.

[t0mas88]

These people mostly contribute via transaction fees, for Amex for example more than half of revenue is from transaction fees instead of interest. Unfortunately for the credit card companies, an economic downturn also reduces spending by the financially stable people. So transaction fees are also affected.

[yurishimo]

This is a good theory.

If anyone is wondering how to escape this cycle, the solution is pretty straightforward; don’t buy things you cannot afford with cash/debit.

If putting your credit card balance on autopay is scary to you, you probably shouldn’t have a credit card. Also, having a credit card doesn’t mean you can ignore the charges and settle up at the end of the month. Credit is a tool that can be abused and misused like any other tool.

Personally, I’m anti credit in general and don’t have credit cards or a credit score. But I also moved to Europe where credit is not nearly as important as when i lived in the US.

[john_strinlai]

>Personally, I’m anti credit in general and don’t have credit cards or a credit score.

if only people could choose to have or not have a credit score. that would be cool. unfortunately, equifax/transunion/experian are some of the original data vacuums and assign one whether you want one or not.

[simpaticoder]

In the US, credit score is used for hiring and rental agreements. It is not something you can opt-out of.

[phil21]

Yep. I'm old enough to remember when credit agencies were considering dubiously legal. It was illegal (in my state at least) for a group of merchants to run a shared 'blacklist' of customers back in the day. The credit agencies side-stepped this. It was pitched as an "opt in" sort of situation where if you wanted cheaper credit or to finance a car or some optional thing in life, you could do so. They were not even used (as much, at least) for house mortgages - the bank would go through financial records and check income vs. debt and your banking history instead. Your credit score (or lack of it) was irrelevant.

Then they slowly became endemic to simply participate in life at all. Good luck renting a spot with a poor credit score even in the early 2000's. My second apartment I had to show my (private mom and pop) landlord a great reference from my previous rental plus supply him with a 3mo security deposit since I had zero credit. I learned then that it was a non-optional part of society and I had better play ball or go entirely off grid hermit style.

Then credit agencies started even more BS like putting in your salary history (mined from employers), any criminal records, etc. It's a social credit score in everything but name and likely implemented far broader and wider in society than anything China currently has. You will literally be frozen out of many careers and entire areas to live if you do not maintain it.

[dghlsakjg]

Yours is also a good theory, but there are plenty of people that find themselves in a situation where income can lag behind expenses.

When it comes to the choice of being responsible with debt or making sure your kid has calories today, there isn’t really a choice in reality.

There is a lot to be said for better financial education, but there is also a lot to be said for services like credit cards that allow someone to smooth out a cash flow issue.

It all seems so obvious until you find yourself in that situation. Most (or many at least) people in debt aren’t stupid or reckless, although they may be ignorant of their options for spending better and for borrowing better.

[greggsy]

I strictly use it to accrue points, but general advice is that credit is useful to smooth out the lumpiness of pay cycles, but if you can’t pay the debt back on necessities within the credit cycle, you shouldn’t use it at all.

Since credit is the primary means used for discretionary spending, I firmly believe that the accessibility of quick (but not necessarily cheap) interest allows inflation to go unchecked.

[alsetmusic]

I was deliberately debit-only for years. Someone on a podcast explained why they used credit cards for extra protections from banks beyond debit cards. I don't know the accuracy of what was said, but the show is hosted by three smart people and neither of the other two disagreed that credit cards have more protection than debit cards so I assume it was generally accurate. I got a credit card right away and use it for most purchases and pay it off in full every month.

[Imustaskforhelp]

I sort of agree although I am for credit cards if they help me with deals since I am frugal personally but even I am thinking to just use credit cards of my close cousins/family if they already have one.

I am giving a transcription of the situation in the video[0] but buy now pay later apps have on average 300% apr (yes this is not a joke) and even ask for tips and have so many dark patterns, both these industries are really similar/the one basically.

> She had just switched to this remote job, which was a pay cut, but it let her stay home and care for her son at the time. And then after she went back to her normal job, she actually stopped using Earnin for nearly two years. She got on a stable financial footing. She even bought this house. But housing costs are expensive and for a bunch of complicated reasons, her child support payment is less this year than it was before. And that put Runeda in this really precarious position, where if one thing went wrong, it would completely throw her off financially. And about two weeks ago, that's exactly what happened. My son wakes up really early sometimes, and it was, like, 5:00 in the morning, and I went to try to, like, open an app on my phone, and it wasn't loading, and I was like did they turn my internet off? And I checked the router, and it said your service has been interrupted for nonpayment, and I'm like, what the heck are you talking about? The bill used to be on auto pay, but for some reason wasn't anymore. they told me I had to pay, like, over $200. I had like 50 bucks in my bank account. That was the first domino, and everything fell apart from there. Runeda borrowed $150 from Earnin to pay the internet bill, the $20 reconnection fee and the $6 Earnin fee.

[0]:Billionaires Found a New Way to Steal Your Paycheck:https://www.youtube.com/watch?v=hBI_FLYfwmM

[insane_dreamer]

Credit cards are a death trap, unless you use them as a debit card - as a convenience (and to collect points) not as a source of credit.

I've had credit cards for 30 years. Use cards for all expenses when I can, have always paid the bill in full every month, have never spent a dollar of interest in my life, so I don't even look at the interest rate when getting a new card. I don't spend anything I know I won't be able to pay for at the end of the month (and yes, that does mean we've postponed purchases for months or even years).

But the allure of buy now pay later is pushed so heavily that it's hard for many people to resist.

[quickthrowman]

> 3. People who are financially stable and literate see the increased rates and put fewer things on credit.

Financially stable and literate people don’t pay credit card interest at all.

Credit cards are useful for fraud protection and rewards, the people that use them to finance purchases at 24% APR are wildly irresponsible or desperate.