Your Future Can’t Afford Your Purchases on Credit

When I worked in retail, I witnessed no shortage of people buying luxuries on credit. Not using a credit card merely for rewards points or other exclusive perks, but because they didn’t have enough money of their own. They had to use the credit limit available or they couldn’t buy. Worse, some had to get extra cards, because they already spent the money available in their primary cards. This is only ~1/10th as bad as getting payday loans, or 3 times as bad as a line of credit. Even the best of the three is still bad.

You are sacrificing greater future affordability than you gain.

Most purchases lose their effect over time. Some rapidly, drugs*; others gradually, a new smartphone. Clever excuse artists may claim they only use their credit for bigger, more functional purchases, like a used car or a bike. This is deceptive compartmentalization. Using up all of your non-credit spending is what causes you to need credit for the other purchases. This includes unpredicted emergency spending. You better be a legitimate psychic if you can only afford the spending you expect.

Buying anything on credit means all of your spending is on credit.
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The Ideal Pace for Paying Down your Mortgage

The answer depends on 3 main factors:

  1. The total debt
    1. This is largely redundant, but the cost of debt changes relative to this value.
  2. The cost of debt
  3. Revenue from the debt
    1. If you couldn’t buy exactly enough for your needs, nor use all of it, all the time, there should be some revenue from your property.
    2. Deduct costs normally covered by rent. Condo fees, for example.

Taking those values, we can project the cost, or earnings, of the investment.


As shown in the chart above, there is an equilibrium rate that would offer a steady return, no matter how much debt. As the relative return decreases, the cost of debt decreases equivalently. The two other patterns offer radically different reactions. If earning less than equilibrium, it would best to move rapidly through the steep part of the curve. Conversely, if you earn over equilibrium, make only the regular payments, and focus on other opportunities.

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