Poll: Are current credit card charges debt?

[ziggy29]

Let's say you go grocery shopping on Friday and and spend $200 on food for a party on Saturday night. By Sunday morning the groceries have been consumed. Are you liable for paying the grocery store bill? Do you owe the grocer money? Are you in debt to the grocer? You betcha!

Actually if you charges the groceries, the grocer doesn't care; he/she has been paid anyway. It's the credit card issuer that owns the debt. (Most grocers won't "put it on your tab" and as far as they are concerned using a credit card is payment in full at the time of the sale.)

Still, I see what you are saying. I just don't think that personal finance needs to follow the same stringent standards as businesses filing tax documents or preparing balance sheets for shareholders. In other words, I think there is more wiggle room in terms of how the accounting is done. There can be colossally bad accounting, such as ignoring that the debt is an unpaid liability in the future, but beyond that they aren't really the same IMO.

 

[traineeinvestor]

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.

This. I have to pay it, therefore it is a debt and this remains true even if I pay off the card balance in full each month.

 

[jonat]

I treat credit cards as if they were cash. It's just that the cash gets spent a few weeks later and I get some benefits from delaying the payment. It is true that the credit industry considers any balance to be debt, as technically it is - you owe it to the credit card company - but from my perspective it's just shuffling cash from one bucket to another.

 

[RetireAge50]

It might be debt but it is not an expense so I do not account for it as anything but a cash flow tool.

 

[tulak]

It's debt and effects net worth. But you need to look at the flip side. You have cash put aside to pay the debt. Assuming incoming cash comes in at the same rate debt is accumulated (or charged in this case), then the effect on net worth is zero.

 

[pb4uski]

..... So, if you pay your credit card balance each month in full, is the current, not yet paid and not yet due balance considered debt?

Yes. In most cases, you have received goods or services and not yet paid for them so it is an obligation.

 

[pb4uski]

Splitting hairs, but the way I look at it is that I don't actually "owe" the money to the CC until the due date. Since I pay it off by that date (if not a little before), then I not only don't owe the money, but in most cases I'll be rewarded for using the card.

I know that technically that's incorrect, but I can't help seeing it that way.

I would say that you owe the money (and therefore have debt) however it isn't due until the due date.

Under your logic, a bond wouldn't be debt until its maturity date.

 

[pb4uski]

I voted no, because I could return the item and get a credit in the very same statement. ....

So it is a debt until you return the item, at which point the debt is cancelled.

 

[mpeirce]

.

I never understood why Dave Ramsey hated cc even for the financially astute.

Because the financially fair to poor can get into all sorts of trouble with credit cards.

And the financially astute are smart enough to ignore his advice.

 

[pb4uski]

I guess what this thread has boiled down to, is it depends on how the person reports it ....

Yes, they either report it correctly or they don't.

 

[pb4uski]

True. But personal finance, with the possible exception of tax preparation, doesn't require strict accounting or GAAP. If it were an accounting, yes, any debt, even that which is paid off in full each month and accuring no ancillary interest charges, is a liability on the balance sheet.

There actually are accounting standards (ie; GAAP) for personal financial statements... it is a very narrow niche of practice, but it nonetheless exists.

 

[EastWest Gal]

I pay my credit card bills like every other bill before the due date, in full, with no outstanding balance. No interest is accrued. Using the logic that such bills are debt, then we always carry debt any day we receive a bg that we haven't paid. I split that hair by calling such bills "not debt", even if some disagree.


Sent from my iPhone using Early Retirement Forum

 

[Helena]

Because the financially fair to poor can get into all sorts of trouble with credit cards.

And the financially astute are smart enough to ignore his advice.

lol

 

[harley]

I not only don't consider my unpaid-until-the-due-date credit card charges to be debt, I consider them an asset. The entire time they are sitting there waiting to be charged to me and then paid, I am earning something like .017% interest on the money that the charges represent. And that doesn't even count the cash back points. So no, not a debt. Just a deferred payment with no negative side effects.

 

[mamadogmamacat]

Voted Yes
too many hairs being split here for my taste
However, it was worth the quick scan just for laugh Nemo2's post on pg one gave me.
The one regarding the debate, and the phone call

 

[Lucantes]

I voted yes.
To me it is a debt (IMHO only applying to me).
I never carry a balance over a billing cycle, and normally pay off my CC balance early or within a few days of the charge arriving on the bank's list.
I don't charge anything on my CC that I don't have the money in the bank already to pay for it.

 

[Sunset]

I mean, if we want to count the angels on a pinhead, writing a check is a form of debt, too. So is using fiat currency itself, really, so how far do we want to take this? If I pay off my CCs before I have to pay interest and I get some travel points to boot, it's a loan but one they pay me a little to take and I'm happy.

I'm pretty sure we all know from an accounting view it is a debt. But we also know accountants do double book entry (who wants to do 2x the work?).

So What about Electricity, and water, and property taxes, each hour you live in you place, or just own it, you are going deeper and deeper in debt. Even if the Utility companies and County has not billed you yet.

I can never be debt free.

 

[Texas Proud]

We all may be right to a certain degree. This what I remember from my working days. There are two accounting types - accrual basis and cash basis. Most businesses are accrual basis, one that recognizes expenses at the time of purchase. So any expenses not paid at the time of purchase are liabilities until they are paid.

Cash basis recognizes expenses at the time of payment. So I can see where one can consider credit card balances as not being debt if the total balance is paid by the due date.


Sent from my iPad using Early Retirement Forum

You have a problem with this logic.... we are not talking about expenses, but debt.... expenses are on the income stmt and debt is on the balance sheet...

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



As for the people who say 'I pay it by the due date' are kidding themselves... you got the bill 20 or so days before which again creates the debt for you... IOW, you know you have a fixed amount to pay by a fixed date....

 

[Helena]

I'm pretty sure we all know from an accounting view it is a debt. But we also know accountants do double book entry (who wants to do 2x the work?).

So What about Electricity, and water, and property taxes, each hour you live in you place, or just own it, you are going deeper and deeper in debt. Even if the Utility companies and County has not billed you yet.

I can never be debt free.

Speaking of property taxes... here tax notices arrive in the mail on or about Oct 1. According to the tax authorities, the taxes are also due on Oct 1. Nice trick if one can manage it. Fortunately, the tax authorities allow several months to pay the bill.

.

 

[Helena]

As for the people who say 'I pay it by the due date' are kidding themselves... you got the bill 20 or so days before which again creates the debt for you... IOW, you know you have a fixed amount to pay by a fixed date....

Actually, I always pay my cc bill before I get the statement in the mail.

But you made me remember that I am usually always in debt to the lawn guy. He bills me at the end of the month for a month's worth of mowing.

.

 

[Major Tom]

This particular question reminds me of the threads on what being retired means, and whether a person working, say, a minor part-time job is justified in calling themselves retired or not.

My answer to that, as well as the question of CC balances that are paid off in full every month is "It's not really all that important how you choose to label it, as long as you understand what it actually is".

 

[Just_Steve]

When I worked in the Fraud Section those people were my bread and butter.

One of them actually said to me "How can I be out of money? I still have checks!" And these people are allowed to have children....

Whats wrong with a little Check kiting?

 

[Totoro]

Next week let's do a poll about which accounting standard is most appropriate for FIRE accounting: US GAAP or IFRS

I'm in the "it's not a debt camp". Current credit charges are like bills I haven't paid yet.

Outstanding bills (not past due date) are a separate concept for me than debt. I do factor them in my net worth, just like income I'm due that hasn't arrived yet.

 

[Ronstar]

You have a problem with this logic.... we are not talking about expenses, but debt.... expenses are on the income stmt and debt is on the balance sheet...

True. I should not have used the word expense when I meant debt. Ok I'll be more specific. When a business makes a credit card purchase of an asset, the cost of the asset is a liability on the balance sheet as of the purchase date. It is considered debt because it is a liability. The cost of the asset is also on the asset side of the balance sheet, causing the balance sheet to balance. When the credit card is paid off, the liability is reduced by the payment amount, and the cash amount on the asset side is also reduced by the payment amount.

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

True

As for the people who say 'I pay it by the due date' are kidding themselves... you got the bill 20 or so days before which again creates the debt for you... IOW, you know you have a fixed amount to pay by a fixed date....

I agree, and true in a pure accounting sense, but I can see where people see the credit card bill like a utility bill. And for personal finance, utility bills (or any bills) are generally not accrued.

 

[RE2Boys]

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.

If not paid by due date,then I track credit as debt. Besides, there is also the issue of relevance depending on the purpose of any reporting I attempt. A quick calculation show it may approach .18% of assets .....less than 2/10 of one percent.