h a l f b a k e r y"This may be bollocks, but it's lovely bollocks."
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Credit card debt can be horrific, and some people simply cannot handle the responsibility of having a $10,000 or more credit limit. Ideally, if you have a credit card, you shouldn't carry a balance. Rather, you should pay it off every month so you don't incur the excessive interest charges.
To help
the novice credit card user, the credit card holder can set a monthly cap on themselves for how much he or she is budgeted to spend. This will help those of a more spendthrift nature to hold themselves to their budgets.
This idea wouldn't have much value for those of us who are more financially disciplined. The idea here is to get people used to the idea of budgeting their own expenses so that they don't incur interest charges.
Will banks go for this idea in reality? Doubtful. They obviously make their money off of people who carry balances from one month to the next, so they would likely eschew any idea that reduces the likelihood of someone carrying a balance.
Q:"Why not just set up a debit card?"
A: Debit cards rarely offer rewards in the form of cash back or points.
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I've often thought about this myself. I think it would be necessary to impose maybe a 15 or 30 day waiting period to increase the limit. Otherwise, irresponsibles would just call the CC company and bump the credit limit up on the spot when they needed the few extra 100$ for that new TV. |
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I like this idea a lot. As you mention, it's unlikely banks will do this without prodding, but I could imagine governments making it a requirement for banks to offer this service, as with other responsible lending legislation. |
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How is this different from a card with a (relatively) low credit limit? If your self-imposed spending cap is, say, $250 and you pay the balance in full each month, you just have a card with a $250 limit.
Incidentally, the refunds or 'points' offered by certain card issuers are entirely funded by higher charges - you're not gaining anything. |
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Q: How is this different from a card with a (relatively) low credit limit?
A: It's the same idea, except that the consumer can change it on a month-to-month basis |
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Q:...the refunds or 'points' offered by certain card issuers are entirely funded by higher charges - you're not gaining anything
A: The merchants raise prices on their goods to compensate for the charges they pay back to the credit card companies. EVERYONE pays the inflated price (even those consumers who pay with cash or check) - My point here was that if you can get the credit card rewards (which are not offered on debit cards), and still pay the same price for goods, then why not take advantage of it? |
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+ I actually asked my credit card company if I could do this. I didn't like the idea of someone else running up multiple thousands in debt if I happened to lose or have stolen the card. They wouldn't do it, though. |
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//It's the same idea, except that the consumer can change it on a month-to-month basis// |
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//I actually asked my credit card company if I could do this.// |
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I've changed my card limits over the years in both directions without issue - I'm surprised that this isn't the case for all ccs - perhaps I just got lucky? Maybe it's a UK/US thing? |
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The onlt problem with doing this and having a 25 or 30 waiting period is when you actually need to put something on credit. Say you're making a long drive, last minute, and your car breaks down. You need a new transmission, but you dont have an extra $700-1000 or more just lying around. But you do have a $5,000 limit credit card, with a $250 cap on it for this month, because you're trying to teach yourself financial responsibility. Call the card company and wait 15 days? It's a good idea, but there would be some problems.
I would rather hae a card or two with low limits ($250 or so) for everyday type things and an emergency card with as high of a limit as possible, but then you just have to be responsible enough to not use it unless you really have to. |
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//My point here was that if you can get the credit card rewards (which are not offered on debit cards), and still pay the same price for goods, then why not take advantage of it?// |
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If you add up all the rewards you might obtain and then subtract them from the interest and fees that you pay for the privilege of having the card I can guarantee that you will come up with a number that leaves you with at least 1 penny less money than you had if you hadn't used the card at all. with a Debit card you do not pay interest on the money used and this way you end up ahead. |
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Credit Card companies are businesses in the business of making money. |
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YOU WILL NEVER MAKE MONEY OVER NOT USING THE CARD. |
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If you did then the CC company would lose money and that is not good for businesses. Businesses that give away more money than they make have a special name, they are called charities. |
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I pay off my card every month, and don't pay an annual fee to keep the card. So, the bank doesn't get any money from me directly. They money they get from me is indirect, in the form of the premium that merchants put on their goods so that they can process cc transactions. I think these points come down to niggling and semantics though. |
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They also get that money from people who don't use credit cards. You are, at least, benefiting from a (possible) 55-day period of interest-free loan. |
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I think this might be an international misunderstanding, as I stand in the same boat as [joetcochran]. If I wanted to save money from not using a credit card I would have to convince everyone in the UK to stop using any cards - debit or credit (debit clearing services charge the merchants too) and wait for competition to bring the prices down by 6% or so. Failing that, I might as well enjoy the points earned on my no-yearly-fee-and- never-pay-interest card, which is probably also paid for by other people's interest payments. |
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My on-line card management page has an option to apply to change my limit. I don't know what they would say if I tried to decrease it, but when I experimented with it to try and double my current limit they turned me down :-( Not that I needed it. |
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First of all, I can see some considerable value in being able to e.g. adjust the credit limit via a secure web site. If a person is planning to buy a $10,000 television set with their card, they would bump the limit up to allow for it, but otherwise keeping the limit lower would reduce risk if the card was stolen. Yes, I know the card company technically assumes the risk, but preventing fraudulent charges would be be better for all concerned than dealing with them afterward. |
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As for "always coming out ahead not using the card", the credit card companies charge merchants a fee for card processing (often around 3%). So if I buy a $100 item with a card that offers 1% cash back, and then pay the $100 within 25 days, the merchant gets $97, I get $1 back, and the card company keeps $2. I'm better off than if I used cash, but the merchant is worse off. |
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I think it is important to keep in mind the difference between using a card for the convenience of not carrying cash and for using it because you do not have the cash(a large purchase). These situations are very different and I suspect that you will find that a GREAT majority of card holders are not using their cards in the way that you are describing. |
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If it were possible it would never work. The scenario would be similar to the classic situation of a compulsive gambler saying, "Here is half of my money, Sam. Hold it for me and don't give it back to me no matter what I say." and then later on the gambler says, "Remember when I told you not to give it back to me no matter what I say? Disregard the fact that I said that. Give me back the money." |
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This reminds me of setting the clock ahead to trick yourself into leaving at the right time. |
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I have never had a credit card and never needed a loan. I suppose it could be said that I play mind games with myself instead of taking advantage of using credit cards correctly. sort of a self imposed limit of no credit. |
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I am sure credit limits are for the purpose of maximizing profit. I am not sure if it is useful to ask people what they think their credit limit should be but it might be some kind of gage in their system. They could give it to you if you are a close guesser and make you think you are allowed to impose on yourself a permanent limit that you are obligated to keep for the reasons mentioned. |
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I have heard of a study that people feel better about the temperature if they have a fake thermostat to control that doesn't even need to be connected to anything. |
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since this is a mind game why not go all the way? If people want to change their credit limit you can ask them why and point to the need for a static self imposed credit limit. If they tell you they earn twice as much now you can tell them that it is a legitimate reason to allow them to self dirrect a new limit(after they suggest it and you approve it for alternate reasons) |
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//I'm better off than if I used cash, but the merchant is worse off.//
No, he's not. The merchant offsets the bank's processing charges by marking up his prices more; he assumes that *everyone* will buy using credit cards, so those who don't are the ones losing out, by paying an overhead for what they're not getting (55 days free credit). |
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I like to see this for parents to control their kid's spending. Not just how much, but the type of vendors. Of course, no cash withdrawl. |
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I think banks would go for this even though it might mean making less money. It a competetive arena and they need ways to distinguish themselves in a crowd. |
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buggar the category, this guy intrigues me... |
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Card issuers could do this without blinking, but I do forsee a drawback similar to what consumers already face in their dealings with issuers. If anyone disputes my assertion that card issuers are basically in business to obscure their terms and whipsaw their cardholders with fees and disadvantageous timing, what I have to say will stir you up, but read on. |
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To provide consumers with cards that carry a fixed low charge limit with high limit option for occasional use, card issuers would propose a dual rate fee for the card. A simple analogy is the tipping point: Card issuer A will be willing to offer cards with a $250/month fixed limit and no annual fee, and 14.99% APR on rolled monthly balances, and will offer them all day long, in your choice of color. You may opt out of any limit increase or rate change, naturally. You may by calling a toll-free number, preauthorize a purchase up to some established extraordinary limit, say $2500; but, A lets you know in advance that there is no grace period on the purchase and your 'special' rate of 24.99% APR begins today. |
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