0% Balance Transfer - Story to Make You Cringe!

[supton]

Define what you mean by afford. Sometimes people miss meaning due to how words can be used differently. I think I am missing yours.

When I bought I did a conventional 30 year. Careful shopping and kept the house to 2x my salary. Mortgage officer goofed on the offer about PMI and didn't have to pay that. In 13 years I went from 5% of the purchase price to 62%. I took a 7% paycut (and lost a week of pay) during the recession. Took advantage of refi rates and dropped into a conventional 15 year when the rates dropped. While raising a family and putting the wife through graduate school and putting a bit towards retirement. Today I think my mort+tax is under what I'd pay in rent (albeit a rental would have more space than my tiny house).

Sounds like your neighbor chose poorly.

I see how you are right about how it can be poor for the country, but my point is, an individual can game the system.

 

[Wolf359]

Originally Posted By: billt460
Originally Posted By: Wolf359
Basically you refer back to the old days...... I sold a bunch of houses back in 2008 also and the difference now is that most people have the down payment. Sure FHA is still popular with a 3.5% down payment, but most of my clients typically have 20% or more.


https://thelendersnetwork.com/average-down-payment-on-a-house/

"Gone are the days of needing to have at least a 20% down payment to get approved for a mortgage. The last data pulled from 2016 shows that the average down payment on a house was about $14,000, or 6% of the purchase price."

https://www.nerdwallet.com/blog/mortgages/20-percent-mortgage-down-payment-dead/

"But the fact is, the 20% down payment is all but dead, and has been for quite some time. 54% of all buyers made down payments of less than 20% over at least the past five years, according to the National Association of Realtors".

https://www.washingtonpost.com/news/wher...m=.65b0abdc4cde

"Underwriting requirements to qualify for a loan have eased. I have also recently seen an increase in advertisements from lenders pitching creative loan programs, such as zero down."

As I said, they haven't learned a thing.



All real estate is local. I'm in one of the top markets in the country. $100k would get you a parking spot. FHA is still popular in some of the suburbs. But with multiple offer situations being popular here, lots of people have 20% for the down payment and you usually end up finding out you got beat out by someone with cash.

You should see the closing disclosures required these days and all the hoops you have to jump through to get a commitment letter these days. They went too far in the other direction after 2008, lenders were killing deals they shouldn't have killed. They've eased up a bit now. Easier to do in a hot market.

Most housing projections say the market is probably good for at least another 2-5 years. Beyond that it's hard to project where the rest of the economy will be.

But have fun pulling up all those articles. In every hot/cold market, there's always a bunch of people pushing the exact opposite.

 

[billt460]

Originally Posted By: supton
Define what you mean by afford. Sometimes people miss meaning due to how words can be used differently. I think I am missing yours.


Simple. The more you put down, the less your monthly payment will be on any given house. Depending totally on income for day to day expenses is dangerous. Especially for the roof over your head. The more of your income you have to depend on week to week, the more precarious your financial position becomes. Today most live check to check, and save nothing. Years back that was not the case.

When I purchased my first house in 1976, in addition to putting 20% down, I had over 6 months savings in reserve after I moved in. That was in case I got sick or hurt. Or God forbid, lost my job. Today most people are one paycheck away from the street. (See the link in my above post). The whole definition of "afford" has a different meaning. It used to mean you could afford something if you had the money to pay cash for it, and it didn't make too big a dent in your savings account. Then it progressed to mean you could put a healthy chunk down, and pay it off quickly.

Today people seem to think you can afford something if you can get someone, anyone to loan you 100% of the money, and you can make the minimum credit card payment. Today people are stretched to the financial breaking point. And that is what is making this whole housing market so volatile. I don't care how "hot" it is or seems to be.

All you have to do is look at what people have, in relationship to what they actually own. It's all out of whack. People today are living way beyond their means. If people today had to liquidate their assets, and pay off all of their liabilities, they would be standing naked in the street, owing money.

Here is something else. New homes today are over 1,000 sq. ft. larger than they were in 1973. The average amount of living space per person in a new house has nearly doubled in just the last 42 years. So this has nothing to do with the size of the families that are living in them. This isn't necessary. It's based solely on what people want. Not what they actually need, or more importantly, can afford.

http://www.aei.org/publication/new-us-ho...nearly-doubled/

And the problem is they are just borrowing more to get it. Because they are saving next to nothing. In 1973 if you tried to get a conventional 30 year mortgage with 3% down, you would have been laughed out of the bank. Today they'll smile at you and ask if you want a soda or water while you're waiting.

Back then even VA and FHA loans were only written on the cheapest, smallest starter homes. Just enough house to get returning servicemen established into the housing market. Today that has greatly over expanded. Again, all with more borrowed money. Simply put, the more you borrow to buy something, the less you can afford it. It isn't really economics, but rather simple mathematics.

 

[supton]

Fair enough.

Personally I'm undeterred. If I get the chance to move, and don't have 20% to put down, I'm not going to worry about it. In the end life is a gamble. Not my fault the real estate market exploded (due to cheap credit or other factors) but I have to live it in all the same.

 

[Mr Nice]

Back in 1973-76 people bought what they could afford. That's how that generation was raised, especially if parents lived through the depression.

Today people sign on the 'dotted line' and worry about the payments later. That's why dealerships offer 72 and 84 months financing.

Furniture stores, 0% financing for 24 months.
Best Buy 0% financing for 24 months.
$900 iPhone, sure no problem. You can finance that phone for 36 months... just in time to want the newest iPhone since your old phone is 3 years old.

Lots of Americans barely keeping their heads about water. The life jacket they are wearing was bought at Wal-Mart with the 0% Wal-Mart credit card.

I know someone with a legitimate net worth of $5M.... and they didn't become wealthy by over leveraging themselves financially just to have the latest and greatest.

 

[billt460]

Originally Posted By: Mr Nice
The life jacket they are wearing was bought at Wal-Mart with the 0% Wal-Mart credit card.


That's good. I like that!

 

[Wolf359]

There was a local bank that had an advertisement on their ATM that said "Life's expensive, fortunately you can finance it."

I always wonder what that really meant. If life is so expensive that you have to finance it, then how are you ever supposed to pay it back? That ad didn't last long.

 

[Jarlaxle]

Originally Posted By: supton
Fair enough--but--why rent when you can buy? As in, if you can get the costs similar, why wouldn't you buy? I mean, you can argue that the system is broke. Fine, I might agree with you. But that is a general observation. From an individual observation, if I can game the system why wouldn't I?

Aren't condos more expensive than houses? I've never serious shopped one. I clicked on an ad for one the other day, and it was cheaper than similar houses, but then I saw that they wanted $3,500 up front and $700 per month for HOA, and that was unrelated of the condo cost. Wasn't interested but I thought those were steep costs.


In my case, it was mostly the crazy property taxes...though now that I'm no longer doing it, I do not miss the unpaid part-time job that is maintaining a house.

 

[supton]

Yeah, property taxes worry me--I know that they'll rise to a mortgage payment by the time I retire. Already around $27/$1,000 and I know that will only rise with time.

I'm no fan of house maintenance either. I don't mind yard work though. But even if I could get the wife to let us take the kids out of our school district, we'd be stuck looking in Concord or Manchester for a 3 bedroom apartment. If we stay in our school district the best I could do is a condo in New London I think. [Go figure, New London has a lower property tax than the areas I want to move to!]

 

[billt460]

Originally Posted By: supton
Yeah, property taxes worry me--I know that they'll rise to a mortgage payment by the time I retire. I'm no fan of house maintenance either.


You bring up 2 good points that I failed to mention.... Property taxes and home maintenance. While most mortgages include property tax payments in the monthly mortgage payment itself, they can't cover yearly meteoric rises in taxes. Your payment will constantly keep going up. High property taxes were one of several reasons we left Illinois. We built a home there in 1985. When we moved in the taxes were $2,600.00 a year.

When we left 6 years later for Arizona, the taxes had risen to over $4,000.00 a year. I just looked up that same house we built and sold on Zillow a few weeks back, and the property taxes are now over $10,000.00 a year. Not to mention the roads, infrastructure, and schools in the area are all falling apart. And all of the city and teacher pensions are all underfunded by billions of dollars.

The taxes in Cook and Lake County, Illinois are among the highest in the nation. And they've risen to the point they're hurting home sales. Remember that a $10K a year property tax bill will add $833.00 a month to a home mortgage payment. Even if your home is paid off, that's a healthy sum to put aside every month. Especially when you add up all of the other monthly utility bills.

And maintenance can become expensive as well. We purchased our home here in Arizona new from the builder in 1991. Since then we have had to replace all the appliances. Have the place painted. Have the covered patio reroofed. Have the A/C system replaced. Have the water heater replaced. And countless other smaller items replaced like garage door openers, faucets, garbage disposals, shower valves, etc. It never ends.

And if a person moves into an older home with a high monthly mortgage payment, they will be faced with much the same. If you don't have the cash put aside for these things, what are you going to do? It won't take long before you have borrowed yourself into too big of a hole to dig out of. So while you might, "win" at "gaming the system", in the long run you'll lose the game.

 

[supton]

Sure. Not to toot my own horn but I do my budgets in Excel, and receipt tracking in Quicken. I can budget for payments long before talking to the bank; I can look at different houses and fiddle with numbers and see what I can "afford". My budgeting doesn't take into account bonuses either (only for tax implications).

Dunno. If I put down 10% on the next house it will be with plan to still max out my HSA with a goal to max out my 401k in a few years (right now I'm only doing 15%). I'd be going in with over $20k in savings, $10k in HSA and the ability to borrow from my 401k w/o issue. Only reason to alter those numbers would be to get past 20% so as to save on PMI. Furthermore the plan is to get a simple house, preferably a ranch, so that siding and roofing should be "cheap" to work on. No fancy roofs for me, please. I have no love for painting but if it's only a single story up I can handle that.

Only thing I don't like about my plan is that it doesn't have me saving much month to month. Only time my savings account grows is when bonuses (or inheritance) comes around. I think though that this era will end before long, as it won't be long before the wife can start making money again.

 

[supton]

Speaking of 0% cards: when we bought our house, we "needed" a washer/dryer. Wife picked out what she wanted at Sears, and found out we could save 10% if we put it onto a 0% CC with them. We figured that was a good idea--rather than burn cash while moving & starting a family, we could spread that payment out over the year. Just divide the payment up by 12 and pay that much per month, and then it would be a freebie loan.

After 3-4 months and the dust settled (newborn and whatnot), we realized we hadn't gotten a bill yet. Apparently Sears felt no obligation to send us a bill! Chased after them to send us statements and paid it off in short order. No interest paid of course, but it's always stuck with me ever since. If I ever use such a freebie loan again I'll know that I may have issues getting statements prior to the expiration of the 0% period.

[Times have changed though, now everything is online, so perhaps it's not such a big deal. I kinda miss having loan booklets where I could make an extra payment or two a year and get ahead of a loan and never worry about getting it into the mail on time.]

 

[alarmguy]

Originally Posted By: gathermewool
I just transferred the ~$6k I owe on both vehicles (2014 and 2015 Subies) to my new CC! Let the groaning begin!

I've been playing the credit card rewards game for years now. I tend to carry a zero balance on each of my cards every month, and receive hundreds of dollar-bucks in statement credits each year as a reward.

I've also taken advantage of low financing rates for each of our two vehicles, which now only have a few grand each left on their respective loans. The interest rates, while low (~2.X% average), are non-zero and allow banks to hold my titles...

SO, after some research, I found a new CC that offers 1.5% cash-back on ALL purchases, which I'll use for the purchases in which my Amex and Amazon cards only offer 1.0% cash-back (i.e., "all other" purchases). Regarding cash-back, the Amex is great for gas, grocery and certain department stores purchases, while the Amazon card benefit is self-explanatory. It may not seem like much, but the extra 0.5% interest on "other" charges, as well as the transfer of ~$6k in auto-loans is pretty much a no-brainer - I should have done it sooner, with an amount much higher on each loan, up to my credit card limit.

...


This is all wrong for too many reasons for me to type and keep the attention of most people, so I will keep it short.

1. Your borrowing money with an offer, to reduce the cost of money you borrowed for cars you could not afford to buy on your own.
Sorry but that is just wrong for so many reasons.
The object should have been to buy cars you could have afforded without going to someone else (banks) to borrow the money from in the first place.
You couldnt do that, so you took out a car loan which is fine and what most of Americans has come to believe is the way to do things and good news for the banks as they are now super rich as everyone goes to them like they are Kings and Queens every time to buy something. yet the same people complain about the big bad banks. (and people come up with the idea such as yours like you are beating the banks at their game, well, question, who had the money? you or the banks to buy those cars?)

Anyway, better plan would have been to save and buy the cars with your own money, so you didnt have to borrow even more money from another person/banks, to pay the first person for the cars you could not afford.

2. Owing money on credit cards is just a weakness that most people can not overcome, they take "free" offers from banks because the banks know a SIGNIFICANT amount of people will not fulfill the free offer part and the banks will make back a thousand percent profit.
Its like a drug dealer who give out free Heroin to get people addicted and once they do, your finished.

3. For people like who pay they bills in FULL every month, turn down all offers of interest free money and stand on my their two feet without having to rely on inviting a bank into their bedroom, credit cards are terrific money savers and if I didnt use the cards I would be throwing away HUNDREDS of dollars in savings every year, actually more then hundreds of dollars if I paid for things in cash.

Everything I that I buy in life I get back in cash from my credit cards companies, some of the larger amounts rotate every three months.

Everything I buy in life I get a 2% or more discount in the form of cash back.
Right now, everything I buy is a min of 2% cash back on one of my cards.
Another card is 5% back on every place I eat
Another card is 5% back on every tank of gas I buy.
Another card is 3% cash back on every supermarket item.

I use these cards because if I didnt, I would be paying more for the products, more or less, the people who can not use the cards I do pay for my discounts. All cards are paid for in full every month.

Bottom line, borrowing any kind of money just shows an immaturity of leaning on other people to lend you money for things you cant afford and any post of someone thinking it is a good thing that they can accept an interest free offer for one year, as a good thing, is wrong.

 

[bubbatime]

Originally Posted By: parshisa
Entire credit score and debth thing in US is a total joke, scam I’d say. Very disheartening to see so many people being involved in it without even realizing how deep down they are. I could care less about the credit score, credit cards and all the junk associated with it. If you cannot buy something with cash - you cannot afford it. Simple and effective. Just my opinion


If you buy stuff with cash, you are paying 2.5% to 5% more for the same goods, than I pay for them. Might seem like chump change, but over the course of a year, in my case, that's about $1000 to $1500 in cash back that I recieve, that I get just for using my credit card over cash. That's a pay check (or several pay checks) for the average person. That's real money left on the table if you pay with cash.

 

[bubbatime]

To the OP, you said you were going to buy a couch on the credit card. If the couch purchase is subject to credit card interest, DO NOT put that purchase on your 0% transfer card.

You'll be stuck with the interest!! Also, when you make a $200 payment to that credit card, they apply the $200 payment to the zero percent portion of the bill, so you have to pay off the entire $6000 from the cars before any payments will apply to the couch(interest bearing) portion of the bill.

Put the couch on a separate card.

 

[gathermewool]

Quick note:

My primary reason for adding a new credit card to my small stable, is that I wanted something to provide 1.5% back for all of the "other purchases" I make, where each of my other cards only awards 1%.

It's a secondary feature and added benefit that the card I chose offers a $200 statement credit if I spend so much in three months, AS WELL AS 0% financing on balance transfers and purchases for the first 12 months (for which I transferred my two auto loans, worth ~$6k and at an average of 2.3%, meaning I have two vehicles that will be title-in-hand in a few days)

I have the savings to purchase the things I'm transferring/purchasing with this new card, but why would I do that, when I can keep those funds in other accounts that will earn me something (even if just a pittance), instead of CHARGING me interest. At worst, I'll earn a very little bit of money; at best, I'll earn a fair bit of money over the next 12 months.

Finally, I'm not Johnny Big Bucks here. I know that the amounts I talking about are what wealthy folks wouldn't even consider worth it; however, for the rest of us, a little bit of extra cash-in-pocket is worth the several minutes it took me to apply for the new card and transfer the loans to it. If you've got a decent credit score and some discipline, you SHOULD be using credit cards to your advantage. Just make sure to read the fine print and ensure that what needs to be paid off IS PAID OFF when due.

Originally Posted By: SHOZ
I do this if I have a large balance on a 0% card and it is nearing the end of the 0% promo period. But look for a no fee transfer too. I have not paid any interest on a credit card in years. I accept most 0% offers and will use that until the promo period ends. Then close the card. I have had at least a 100 credit cards over the years.

The last three or four years the promo periods have been getting longer. Last one, and the one I currently, use is 21 months.


This is exactly what I'm talking about. I know others have post similarly, but what you're doing is what I aspire to. I only take advantage of things like this every 5 year or so, when I should be doing this every time my 0% interest card period has expired, transferring to another card with zero transfer fee, effectively extending my pay-back time to the CC companies to many years.

They prey on enough poor schmucks; why can't we take advantage of them, when we can!?

 

[billt460]

Originally Posted By: bubbatime
Originally Posted By: parshisa
Entire credit score and debth thing in US is a total joke, scam I’d say. Very disheartening to see so many people being involved in it without even realizing how deep down they are. I could care less about the credit score, credit cards and all the junk associated with it. If you cannot buy something with cash - you cannot afford it. Simple and effective. Just my opinion


If you buy stuff with cash, you are paying 2.5% to 5% more for the same goods, than I pay for them. Might seem like chump change, but over the course of a year, in my case, that's about $1000 to $1500 in cash back that I recieve, that I get just for using my credit card over cash. That's a pay check (or several pay checks) for the average person. That's real money left on the table if you pay with cash.


The problem is you're not the "average person"......

"The average American has a credit card balance of $6,375, up nearly 3 percent from last year, according to Experian."

https://www.cnbc.com/2018/01/23/credit-card-debt-hits-record-high.html

Credit card companies and banks know this all too well. Their entire business is built on it. That is why they set up the whole "cash back" scam in the first place. They play the percentages, because they are in their favor. Much like a gambling casino. For every "winner" there is a parking lot full of losers. Credit card companies and casinos don't lose money.

The whole "cash back" scam is based on you paying off the debt you have accumulated right away. Most Americans with credit cards won't because they can't. The credit card companies lure them in with the whole, "cash back" scam, knowing they won't have to pay a dime back to a high percentage of them. In fact they'll be collecting 21+% interest from the bulk of these financial buffoons, because they are all outspending their paychecks by a large margin.

So while you may have the financial discipline to make out, there are hundreds of thousands with the same intention who won't because they can't. "Cash back" simply lures them into more added debt.... And the wheels on the bus go round and round.

 

[supton]

Originally Posted By: billt460

The problem is you're not the "average person"......



So while you may have the financial discipline to make out, there are hundreds of thousands with the same intention who won't because they can't. "Cash back" simply lures them into more added debt.... And the wheels on the bus go round and round.



So, what is the argument? That disciplined people along with everyone else should avoid cash-back reward cards?

 

[gathermewool]

Originally Posted By: supton
Originally Posted By: billt460

The problem is you're not the "average person"......



So while you may have the financial discipline to make out, there are hundreds of thousands with the same intention who won't because they can't. "Cash back" simply lures them into more added debt.... And the wheels on the bus go round and round.



So, what is the argument? That disciplined people along with everyone else should avoid cash-back reward cards?


Seems like he has one point: live WELL within your means, if you're going to play the game; otherwise, you may end up losing way more than you intended to gain.

 

[billt460]

Originally Posted By: gathermewool
Seems like he has one point: live WELL within your means, if you're going to play the game; otherwise, you may end up losing way more than you intended to gain.


Exactly. Also, you can bet there are a lot of well intentioned people who buy into the whole "cash back" scheme, with full intentions of paying it off immediately. Only to get financially side tracked, then fail to do so because of other expenses that pop up after they make the purchase.

The bottom line is we're right back to cash. If you don't have the cash put aside when you make the purchase, don't play the "cash back" game. Most of those that do will lose, and just pile on more debt in the process.... Which is exactly what the credit card companies are hoping for in the first place.