Is it ethical?
We know someone in the UK who worked out that he saved more than GBP15 000 on his home loan. He did this by taking advantage of constant stream of zero-interest credit card offers he would get. The cycle worked like this:1) He accepted a few of those card offers (let's call them "Card A"), and used the maximum limit to pay off as much of his mortgage as he could.
2) He kept a careful calender which told him when his Card A 0% window ended. On the day before it ended, he would accept another companies' offer, and "spend" the limit on Card B to pay off Card A, and close the latter account.
3) "Lather, rinse, repeat" - when Card B became payable, Card C was more than willing to extend credit to this consumer with the ever-rising credit score...
This plan strikes me as very clever, and probably requires far more financial alacrity than I feel I possess. But it does make me wonder: is it ethical? I feel I can argue that it is... since there is no cheating going on, and what is being done is shrewdly capitalizing on a system where the BANK has made the rules. Presumably their actuaries have calculated that the money they will make on many others is far more than the money they lose on helping pay for our friends' house... But yet I can't help feeling that it is sneaky.
To bring the matter closer to home: was it wrong for me to open a clothing store account last week solely because I got a 20% saving on my shopping spree - even if I fully intend to pay it, and then close it, at the end of the month?
posted by Bronwyn at 12:50 am
7 Comments:
Well...To be honest, if one's budget is truly tight, and that the only way to obtain some desired commodities is by opening a store account, then personally, I would do it myself. I would pay it all off, and then close the account to avoid any further temptations.
My personal philosophy on spending is always this: "Don't spend more than you earn." Pay off your credit cards each month.
It doesn't unethical for you to open a store account intending to close it in the near future while also paying it off completely. That is actually being very savy with your money and the special offers of the credit card company. If the company didn't have enough profit and was losing money because people actually paid off their credit cards... then they probably wouldn't given out the offer. The offers are really incentives to try to hook you into opening a card account (no matter the length you keep it). The fact that they got you at all means they "won"... and if you do end up canceling the card and getting out without paying any interest... then you have "won" also.
The paying off your mortgage using credit cards is still a pretty savvy move.. risky if you're not totally on top of you cards though. It still goes back to the fact that he is taking advantage of credit cards special offers. They don't have to offer them, but since they do and hook many people in this way.. why not take them up on it and pay off/switch when the offer expires. Of course, what your friend is doing is not just moving his loan payment around... he is also paying it off (even though you didn't explicitly say, it sounded like he must if he could say he was really "saving xxx gbp"), right? Otherwise, if he's just moving it around.. he's not really getting closer to paying his house off... is probably going to run out of possible cards to switch to... and will still have to pay everything off. It's just a "delayed" payoff then.
Hmm. Ethical, I think, would mean to behave in a manner inconsistent with the expectations of a relationship. In this case, UK friend has acted within a system, behaving within the laws and boundaries of that system. The banks prey on individuals with these offers to try and catch them in a debt trap, but those savvy individuals who can work the system within the rules to their own advantage should not be disparaged.
In the case of buying clothes, if you were fully intending to buy the clothes away, then of course take out the account, take the 20%, and then close it. It is ethical, right and good, although of course the bigger ethical question is, of course, whether you should be going on the shopping spree in the FIRST place... ;)
PS: dont forget to read my humourous and fun coffee blog at www.barista-in-review.blogspot.com! :)
Thanks for comments everyone. "I feel better now. I feel good. I feel better than James Brown." (does anyone else remember that weird song?)
Ffronqk: see previous post on stretchy pants to justify last week's shopping spree :-)
Hmm, I'm glad the consensus is that it was ethical! I was standing right next to you while you took out the card, AND I benefited from it too, asking you to put my purchase on your card... You'd never strike me as a big (or frivolous) spender!
Being the wife of an economist who also cares deeply about ethics, I have a strong sense that your friend's financial savvy is perfectly fine. The banks make a killing on people's poor "credit" (could also be called "debt") management. It is refreshing to hear of clever and honest ways of making your debt and your money work for you!
B. - you ARE the shrewd manager in Jesus parable!
(that's a good thing by the way . . . )
Scott T
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