Poll: Are current credit card charges debt?

[gauss]

Maybe in a technical sense yes, but not in the lay person consumer finance world.

If I were paying interest on the current months charges then I might reconsider it as debt.

-gauss

 

[pb4uski]

As many have said, technically it is debt, but I don't track it as debt as I classsify it as household floating & recurring expenses, just like utilities. I also don't count cash as an asset, same reasoning. ...

Any perhaps that is where the difference lies. It could be that people don't bother to track credit card debt so they are responding that they don't "think" of it as debt even though they concede that "technically" it is debt.

I happen to download all my credit card charges to Quicken to track my expenses so I track my credit card charges and the balance shows up in my 'books" as a liability. However, I don't bother to record deferred taxes in Quicken but I recognize that it is a liability that would need to be recognized if I were to prepare a personal balance sheet in accordance with GAAP. But if you asked me if deferred taxes were a liability I would say yes... even though I don't track it.

For another example, I don't bother to track credit card charges in what I track in Quicken for my mother. It is still debt... I just don't bother to track it.

 

[pb4uski]

....Even a cash basis accounting keeps an accounts payable and accounts receivable ledger.... the account payable is DEBT...

....True ...

Actually not true. AP and AR are accruals, not cash basis.

When I was doing small business financials early in my career, they kept their books on a cash basis... then we would come in and set up accruals for AR, AP, etc. to compile accrual basis financial statements.

What is the difference between the cash basis and the accrual basis of accounting? | AccountingCoach

 

[Ronstar]

Actually not true. AP and AR are accruals, not cash basis.

When I was doing small business financials early in my career, they kept their books on a cash basis... then we would come in and set up accruals for AR, AP, etc. to compile accrual basis financial statements.

What is the difference between the cash basis and the accrual basis of accounting? | AccountingCoach

We kept AP and AR as an S corp, using cash basis for tax accounting while maintaining books for bank, etc on an accrual basis. So we were similar to you. We ran the ledgers, but the data was not present in tax accounting since payments are recognized the day you pay them and income is recognized the day you deposit the checks in cash basis.

 

[kaudrey]

Yes, it is debt.


However, for my NW calculation, I don't include it; likewise, I don't include the money in my checking account. Since checking account money pays all of the monthly bills, I assume whatever is in there will be gone at some point to pay a bill, including credit cards.

 

[brett]

Does the amount matter? We pay our credit card balance off each month.


The balance can be anywhere from a few dollars to 5-12K depending on whether we have prepaid any travel arrangements. I would view a few hundred dollars as current, but $10K as a debt.

 

[pb4uski]

We kept AP and AR as an S corp, using cash basis for tax accounting while maintaining books for bank, etc on an accrual basis. So we were similar to you. We ran the ledgers, but the data was not present in tax accounting since payments are recognized the day you pay them and income is recognized the day you deposit the checks in cash basis.

Agreed, that is sort of the inverse of what I was saying some of my clients did. You kept your books on an accrual basis and adjusted to a cash basis for your tax return. My clients kept their books on a cash basis and we adjusted to accrual basis for their financial reporting. Just two different ways of skinning the cat.

 

[ERD50]

.

Am I in debt to a store between the time I put the items in my basket in the aisles and the check-out register ??

I consider my cc statement the final check-out register.

We can split hairs further than this!

How about the gas you use driving to the store? It's used, but you don't pay for it until later, when you decide to fill up. Is that a debt that is being accrued by the mile? Tire wear, maintenance?

Utility bills are generally paid after you have used the product. The list goes on and on.

Other than any entertainment derived from a hair-splitting, counting angels dancing on pin heads type discussion, I don't see where any of this matters in any material way. Cash flow wise, the running average will wash out most deltas.

-ERD50

 

[pb4uski]

This is why every financial accounting standard includes a box with the following:

The provisions of this Statement need not be applied to immaterial items.

In the places where I worked the guide word was reasonable approximation.... a reasonable approximation was preferable to precision if the cost of precision was a waste of time... definitely lots of judgement calls as theory meets practice.

 

[2017ish]

I don't consider anything I can pay off instantly a debt. I use credit cards only because they are easy not because I don't have the money and "need credit".

...

This would exclude my mortgage, and probably more than a few others' on this forum. (OK, "instantly" would have to be somewhat loosely interpreted to allow for sale of sufficient emergency funds from VFSUX.)

We run everything we can through credit cards, thereby having a constantly evolving amount of short-term debt....

Next Poll: At the breakfast table: Big-Endian or Small-Endian?

 

[Nemo2]

Next Poll: At the breakfast table: Big-Endian or Small-Endian?

Small always.....no Blefuscu here.

 

[nash031]

Voted no. I think "revolving" credit card debt is "debt". I think credit cards used to garner points as deferred debit cards are not "debt". I have never paid a finance charge on a credit card, yet have had "credit card debt" for my entire adult life. At no point have I ever considered that a problem, especially not when redeeming hundreds of dollars of travel rewards, benefits, or purchasing things on Amazon "for free."

 

[Walt34]

That said, I (and I suspect many here) know how much they are charging and at least mentally considering that money already spent. In other words, if I had $4,000 in checking and I charged $800 so far in the month, I think of myself as having $3,200 available in checking.

We use a spreadsheet that does just about exactly that. Every time one of us charges something we put it in the spreadsheet and it then recalculates how much discretionary money we have left for that month. Utilities and slightly variable things are estimates but we get it pretty close. I have to credit DW with that idea, and I like it.

 

[GalaxyBoy]

Sure, it's debt. But in the context of an overall net worth calculation it's just too small to worry about tracking on a monthly basis. If my NW is $2M, why track $2k, or 0.1%?

 

[Cobra9777]

Conceptually, I think it's abundantly obvious that any unpaid CC balance represents a liability that must eventually be paid. Even if you pay it off in full by the due date, it still represents a liability prior to that. But I do not consider it to be "debt" which typically implies a longer-term financing activity with interest charges on the unpaid balance. From a reporting standpoint, even in the rare instance that someone was preparing official personal financial statements under GAAP, it is highly unlikely that 30 day's of CC activity would be material to overall financial position. So no liability would be recorded for the unpaid balance.

The vast majority of individuals use the cash basis of accounting for their own tracking purposes. So if the CC balance is paid in full by the due date, no liability would ever be recorded. This is the same as paying any other bill. Individual's typically do not read the electric meter at midnight on the last day of the month and then record a liability in Quicken. Nor do they accrue property tax liability as it's incurred throughout the year. Nor do they amortize a prepaid asset on homeowner's insurance paid a year in advance. Point is, there's nothing unique about credit card activity paid in full each month, as compared to these other items, which would cause it to trigger the "debt" characterization. Just because Quicken automatically imports your CC balance and colors it red in the left-hand column, does not make it more of a "debt" than your unrecorded and unpaid property tax.

 

[niven]

Just when I think Bogleheads has the most anal discussions, you people make me reconsider.

Here's a favorite saying - "A difference which makes no difference is no difference". Make of it what you will. I'm sure both sides can use it.

 

[Texas Proud]

Actually not true. AP and AR are accruals, not cash basis.

When I was doing small business financials early in my career, they kept their books on a cash basis... then we would come in and set up accruals for AR, AP, etc. to compile accrual basis financial statements.

What is the difference between the cash basis and the accrual basis of accounting? | AccountingCoach

WOW.... so how did they know what was owed to them Or what they owed


If they had a file with their bills and another with unpaid invoices, then that was their AP and AR... they just did not write them down...

 

[pb4uski]

I assume that you are pulling my leg. Sort of like the difference between perpetual inventory records and periodic inventory. They were periodic for receivables and payables as well and did not have a receivables or payables register.

Our more sophisticated clients had registers for receivables and payables and perpetual inventory.

 

[braumeister]

For those still on the fence about this important issue, the following may help:

Quantum Gravity Treatment of the Angel Density Problem

Abstract
We derive upper bounds for the density of angels dancing on the point of a pin. It is dependent on the assumed mass of the angels, with a maximum number of 8.6766*10exp49 angels at the critical angel mass (3.8807*10exp-34 kg).

Dance Dynamics
If the angels dance very quickly and in the same direction, then the angular momentum could lead to a situation like the extremal Kerr metric, where no event horizon forms (this could also be achieved by charging the angels).[4] Hence the number of dancing angels that can crowd together is likely much higher than the number of stationary angels.
However, at these speeds the friction caused by their interaction with the pin is likely to vaporise it or at least break it apart.

 

[mrfeh]

Lemme get this straight.

I pay for your dinner and you promise to pay me back for it in 30 days. And you think you are not indebted to me?

It's debt. Not bad debt, but debt none the less.

+1

It's clearly debt, despite the mental juggling in some responses.

 

[GTFan]

Technically yes, but in practice "no" if paid in full each month with no carrying/finance charges. If it is debt, to me everyone would have debt. Example, my monthly electric and water bills are based on usage playable only "after" I use it. Is that debt? Technically yes, but not really for practical purposes.

This is the right answer. Regardless of the correct accounting term (current debt) used to describe it, for most people that pay off bills every month it does not count as debt.

And it shouldn't, because there's no intent to borrow money over time here. And by time I mean more than the due date of the bill.

 

[GTFan]

However, I think the way some people are arguing, "the moment you swipe a card, you owe a debt" then you would also have to all your bills as debt as well. The moment you turn on that light switch you owe the electric company, the moment you own a house (even if paid off) you owe real estate taxes, etc. Unless you are prepaying for all those services, then no one could could ever be debt free by some of your definitions.

That is indeed the problem with their argument - if you're not either prepaying or paying with cash the instant you buy or consume anything then you must have debt and so very few can be truly debt-free. Everyone here answered the debt to asset poll incorrectly if they said they had no debt, even if they don't use CCs.

Problem is few see it that way regardless of the accounting principles involved, and that's because we're not running households under GAAP.

Ergo, CC bills paid off every month are not debt under commonly accepted usage. They are debt under the strict definition of it. Reasonable people can and will disagree but note that this poll is in favor of the No's.

 

[niven]

How's this? When I pay off my card, I pay the total outstanding balance, not just what made it into that month's statement. So at least once a month I'm credit card debt free! HA!

 

[Nemo2]

As a public service.....cross posted on What Have You Read Recently?

Finished No Man's Lands and thoroughly enjoyed it..........even found what could be an oblique reference to those partaking in the Current Credit Card Charges thread, and which will undoubtedly clarify matters:

Regarding Homer, the experts agree on these facts: Homer either did, or did not exist; he lived in the ninth century BC, unless it was the eighth, or tenth, or not at all; he wrote The Iliad and The Odyssey, or one of them, or neither, or perhaps other lost poems; either he actually wrote or he dictated, since he was either literate or illiterate; either he was blind or he was not; and he was born, if he ever was, in Smyrna - or in Argos, or Chios, or Colophon, or Salamis, or Rhodes, or Athens. That's the general agreement. If you go beyond that, people begin arguing.

 

[YVRRocketSurgery]

I consider credit card balances mid cycle as debt. However, from a practical perspective, it's not an issue. Hair splitting as others have said.

Plus, when I do my end of month net-worth/investment calculation, I do a mid-cycle online payment to clear my all my credit card balances before tallying up investments.