Attitudes Towards Debt, Bills and Credit Card Arbitrage

Everyone has heard about making money using credit card arbitrage. (If not, you can read about it here). I finally got into the game last year, since that was the first time I had access to a 0% balance transfer offer on a large credit line. I don’t quite care to go through the arbitrage, if the returns are just a few hundred dollars – the effort and the management headache are just not worth it. But last year, with just three credit cards – two of mine and one belonging to the better half - we got access to $50K of credit at 0% APR. By adding $5K to it, we opened a CD for $55K and will now earn an interest of around $2K on it. I was very happy for being a smart enough credit card user and pulling it off.

The better half on the other hand, while glad to be making the $2K, is distinctly uncomfortable with the idea of carrying credit card “debt”, that too, to the tune of tens of thousands of dollars. I have mentioned before (here and here) that we had a bad run in with debt earlier. That, and way he was raised makes him cringe at the thought of debt even if it is good debt (in my opinion). I managed to convince him to jump on board initially, but ever since, he has been bringing it up on and off in our financial conversations with sentences like “…not while we still have so much debt”. It bugs me to no end. How can it be treated as a liability, if the money is sitting pretty in a CD and earning us interest, and in the unfortunate event that something goes wrong, we can just break the CD and pay off the credit card company?

The 0% BT term ends in a month or so. Instead of paying back the credit card, I want to roll it over to another credit card and keep the game going. Who doesn’t like free money? The better half on the other hand, just wants to pay back the credit card company and stay away from such “hustler” schemes! Not carrying any debt, to him is much better than making free money! While I have been saving the 0% APR credit card offers I have been receiving in the mail box for the past couple of months so I can choose the best offer to roll the balance into, the better half has signed up at an opt-out website and diligently shreds the offers that made it through the cracks of the opt-out system.

“Debt” as it turns out, means entirely different things to different people.

Here’s the neat thing though. The way we manage finances in our household - even though we have a common money pool, each of us makes our own financial decisions. So, I offered to roll over the balances from the better half’s credit card into my own cards. Turns out that while the better half has issues carrying balances on his credit card, he is not half as anxious about me carrying those balances! I don’t think it is a flippant “I don’t care what you do” attitude, since he will raise all hell, if I actually get into real debt, (instead of “arbitrage debt”). And it is a common money pool, after all. Which makes me wonder is he really against the debt, or is it the anxiety of managing the debt that is really causing the difference of attitudes here? I am fairly obsessive-compulsive about tracking my credit cards, and making sure that a little over minimum payments is sent out each month, well ahead of the due date. The better half on the other hand, hates this, and lesser the bills he has to deal with the better, even if the bill shows him the money that is earning interest for him!!!

That brings me to more general musings about “debt”. Maybe the reason why so many people are into debt is that they are a few steps beyond me in the spectrum of tolerance for the bills. While the better half is not OK with receiving any kind of bills, I am OK with bills indicating debt, as long as I am not paying any interest for it, and earning interest on that money instead. What if there are people who have an even more relaxed attitude towards handling the bills? – maybe they are OK with low interest instead of high interest. And then, at the other extreme end are the people who are perfectly fine with any interest rate since they do not perceive it as a threat at all. Our perception of “debt” and “debt management” seem to be intricately tied together.

This also explains why there are so many opposing opinions about whether to pay off student loans ASAP or keep them for longer. And whether to pay off mortgage ASAP or keep it for longer. People like the better half will try to pay off all these as soon as they can – even if it is a low interest student loan or a mortgage. People like me won’t stress it out too much. I personally prefer to make extra payments since the loan is not at 0% and I am not guaranteed that if I put the money in other investments I will receive more than the 5.125% interest rate we are currently paying on the mortgage. So, if I can comfortably make additional payments on the mortgage, I will. At the same time, if I find a good investment opportunity (our alternate investment vehicle is real estate back in home town where the market is hot, and it is essentially a wait-and-pounce game) I will pick that in favor of making the extra payment on mortgage. Then, there are some friends I know who will intentionally make only the minimum payments on their student loan and mortgage to keep it for as long as possible, so they can invest the money else where. Sometimes, they earn better interest on their investment than they are paying for their loans. Sometimes they don’t. But unlike me, they are OK with it. Finally, there are the people who do not perceive a high interest as threat at all. How they can do it, is beyond my understanding though, so I won’t even try to write anything about them.

I guess finally, it all boils down to one thing. Every person has to find his/her comfort zone, when it comes to financial dealings. And should try and maximize the returns within the realms of their comfort zone. There is no one right way of doing things. Every now and then, re-evaluate if you have stagnated and if so, see if you can push the boundaries a little. As long as we keep thinking and trying to the best we can within our abilities and try to push our limits a little every now and then, I think we should have a good chance to succeed – irrespective of what the exact approach is.

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3 Comments:

Jenn @ Frugal Upstate said...

OK, totally not on your article. Where do you get your photos from? One of the things my site is missing is photos most of the time, but I don't really know where to go for copyright free/royalty free ones.

ispf said...

Jenn: I usually get my photos from one of these two sites -
http://www.sxc.hu/home
http://office.microsoft.com/en-us/clipart/default.aspx

Stephanie said...

Good thought material here. I have to say right now I think more like you husband, but that is probably b/c we've dug our selves into a big hole of debt.