Advice For Young Men: Credit Cards

[mjb2124]

Re: Advice For Young Men: Credit Cards

^Above Translation: You could have the money to pay a purchase off, then something come up, and now you cannot pay off that purchase because you don't have the cash-in-hand to do so.

Agreed on that point, but again...it goes back to the individual being financially responsible. Not everyone can't control their spending and/or doesn't plan for the forseeable future. Ex: One doesn't buy a $3000 TV if they only have $5000 in liquid assets. It's not a smart decision as they don't leave themselves with much "falling on hard times" money. As I was taught when I was younger by my Father, have 6 months of salary saved at all times in case something happens. That alleviates a lot of unnecessary stress and worries when something does happen (and no matter how hard we try, something always happens during the course of a year that is a large unexpected expense).

[WazzuRC]

Re: Advice For Young Men: Credit Cards

I really f'd up my credit score 2 years ago. Luckily I'm still young (25) so I have plenty of time to build it up.

Basically what happened was going into freshman year my dad set me up for a student loan that I thought he was paying, not me. I completely forgot about it since I figured it was his to pay off and I had other loans that were mine. The bank never once tried to contact me, via email, telephone, or mail statement. I moved so I understand the mail statement, but I've had the same email and telephone number since high school. Needless to say, never got a statement or phone call and the 10k student loan defaulted, royally screwing my score. They finally got in touch with me via phone to let me know that my loan (that I didn't even know I had) had defaulted. I was not too happy.

I've gotten it back up to close to 600, but that's still poor.

[Trevytrev11]

Re: Advice For Young Men: Credit Cards

Trev...JBH...

You guys have both brought up "APR"?

Trev...You said something about APR being divided by 12 months. So are you saying that if a card says it has 20% APR, that you'd only be paying about 1% from month to month on any balance? I've always just assumed that if it said 20% APR, that meant 20% interest added every month on your balance.

And JBH...You mentioned something about fixed APR's. Would you mind going into a little detail about the different types there are.

Basically, if you guys dont mind, I would like to know about all the additional monies I'd be spending by using a credit card. Such as APR and anything else that may be charged to a user. I just would like a good understanding of what I could be spending ON TOP OF any purchase I make using a credit card.

As you know when you borrow money, companies make money by charging you interest.

So when you sign up for a card, some will have fixed rates (10% for the life of the card), where others fluctuate based on the fed's prime rate. Usually they are a certian % over the prime rate and will move when the fed's rate moves (on a monthly basis).

Most people think that with a card with a 10% rate, you will pay 10% every month, when in fact you pay 10%/12 every month.

So lets say you buy a TV at Best Buy for $1,000 at a rate of 10%.

-First off, your min. payment will be like $20 bucks. Even if no interest was ever charged, it would take you 4+ years to pay it off. Alwys try and make more then the minimum payment (more on this later).

-OK, your first month goes by and you get your bill for $1,000 and you pay off $100

So you have a balance of $900. This gets hit at the rate of 10%/12 (.8333%)

So you recieve your next bill and now you owe $900*1.008333= $907.50. So essentially you TV has already cost you an additional $7.50. So you make a $50 payment. and now your balance is $857.50 and then you get hit with another round of interest and your next bill is $864.65. So you have paid $150 on your TV, but your balance has only decreased $135.35. Best Buy is making some money off of you and you are paying more for your TV than you would have if you'd have paid cash. This goes on and on until you pay off your balance in full. After a year, you've probably racked up $60-$80 in interest, assuming you keep paying down the principal (the amount you borrowed).

-Another thing to watch out for. A lot of companies will give you 12 months interest free. Often times, if the balance is not paid in full, you will owe the full amount of interest in month 13. So you essentially are no better off if you cannot pay it off in time. Other times, interest will only start accumulating on the balance is due.

-Real world example of why it's not smart to make minimum payments.
Last month I charged about $4,200 on my card. The minimum payment is only $85.00. If I never charged another thing and made only the minimum payment, it would take 25 years to pay off that amount. And I would end up paying $9445 total ($5,245 in interest- more than the original price owed).

This info now must be printed on every statement per the gov's, which is good, IMO. A lot of people don't realize how futile it is to make only the min. payment.

My suggestion is if you just have to have something that you don't have the cash for try to hold off. If that can't happen, then set a plan to pay it off in X amount of months and then budget that payment instead of the minimum payment. So even though on that $1,000 TV the minimum payment is only $25, try to get it paid off in 6 months and pay $170 or so a month to make sure it happens.

Edit***Some cards have annual fee's to use their card. They usually range from $39-$69 a year. You should be able to find a comparale card with no annual fee. I don't see a reason unless there are special circumstances that require a certain card to pay a fee.

[mjb2124]

Re: Advice For Young Men: Credit Cards

This should all be covered in a mandatory High School class taught to seniors.

Hell of a point. People are taught so many different things in high school and college, but being financially responsible and learning how to manage money isn't one of them (unless things have changed since I was in HS/College). I know that I was lucky because my Father taught me a lot about money/financial responsibility/saving etc..., but many younger people don't have that opportunity. Heck, I'm 33 and he's 67 and is still teaching me...instead of being financially responsible, it's about my 401K/Roth IRA's/retirement savings/making my money work for me etc...

[NDAlum]

Re: Advice For Young Men: Credit Cards

They can't teach it to the dumb because how would they make their money?

[Chaos81]

Re: Advice For Young Men: Credit Cards

This should all be covered in a mandatory High School class taught to seniors.

Agreed. I took a "personal math" class my senior year in HS that covered all of this stuff. The sad part was about half my class failed it because they didn't get certain things, and this was an EXTREMELY simple class. Made me realize just how out of touch with reality some people are.

[JBH3]

Re: Advice For Young Men: Credit Cards

Trev...JBH...

You guys have both brought up "APR"?

Trev...You said something about APR being divided by 12 months. So are you saying that if a card says it has 20% APR, that you'd only be paying about 1% from month to month on any balance? I've always just assumed that if it said 20% APR, that meant 20% interest added every month on your balance.

And JBH...You mentioned something about fixed APR's. Would you mind going into a little detail about the different types there are.

Basically, if you guys dont mind, I would like to know about all the additional monies I'd be spending by using a credit card. Such as APR and anything else that may be charged to a user. I just would like a good understanding of what I could be spending ON TOP OF any purchase I make using a credit card.

Trev did an excellent job explaining. Here's a helpful site that piggy backs on what Trev talked about too.

Also regarding APR....Fixed APR:

Function

<LI id=jsArticleStep1 itxtvisited="1">Technically, if you are very responsible, a fixed interest rate card will not provide the best deal. If your finances are unpredictable, however, a fixed interest card can help to flatten out your expenses. One thing to pay attention to when shopping for a fixed APR card is to look for cards that charge the same interest rates for all transactions. Many cards make things far more complicated than they would be otherwise by charging different interest rates for different types of transactions--like groceries, gasoline and so on. *I never pay for groceries w/ my credit card, and rarely pay for gas w/ my credit card.

Pros/Cons of Variable and Fixed APRs.

As I was taught when I was younger by my Father, have 6 months of salary saved at all times in case something happens. That alleviates a lot of unnecessary stress and worries when something does happen.

^ Which is a MOST important point for someone like TMagic. Build a savings before you start using a credit card. In the Corps we were always taught to have 3-months salary, but the more the better.

[TMagic]

Re: Advice For Young Men: Credit Cards

Thanks a lot fellas. A lot of good information in here. It really helped a lot.

So with all that, are there any specific credit cards that you highly suggest? And Any that you would NOT recommend?

Which credit card and credit card companies would you recommend?

[ESPNdeportes]

Re: Advice For Young Men: Credit Cards

Pay it off in full every month, no exceptions. IMO, the only things worth going into debt for are education and home. If you can't pay in full, don't buy it.

[Jonesy]

Re: Advice For Young Men: Credit Cards

Even those 12 month interest free things can be a bit of scam as well.

My sister in law just went to buy a new fridge and tv. For examples sake say all up the bill was $1000 the guy said to her "you also have the option to buy this stuff interest free over 12 months" so she said how would that work. The guy gets a calculation sheet and say basically you take it home today and pay 12 monthly payments of $113 and it's all paid off. So when you multiply $113 by 12 it means you are actually paying $1356 for stuff worth $1000 but it is advertised as "interest free" even though the interest is inherently build in to the cost over the payment period.

Just something to keep an eye out for.

[NDAlum]

Re: Advice For Young Men: Credit Cards

Thanks man I thought it was freakin interest free! I will watch out for that

[p_rushing]

Re: Advice For Young Men: Credit Cards

Even those 12 month interest free things can be a bit of scam as well.

My sister in law just went to buy a new fridge and tv. For examples sake say all up the bill was $1000 the guy said to her "you also have the option to buy this stuff interest free over 12 months" so she said how would that work. The guy gets a calculation sheet and say basically you take it home today and pay 12 monthly payments of $113 and it's all paid off. So when you multiply $113 by 12 it means you are actually paying $1356 for stuff worth $1000 but it is advertised as "interest free" even though the interest is inherently build in to the cost over the payment period.

Just something to keep an eye out for.

That is not correct. There had to be something else also included. Interest free is interest free. The price would not go up. The store has nothing to do with those offers.

Take Best Buy as an example. They may have a credit card and may offer interest free options but it isn't Best Buy the store offering it. It is a Bank or a Best Buy Credit, etc that is making the offer. Best Buy the store gets paid immediately and the Bank then collects the interest. Best Buy the store doesn't want to have the liability that you won't pay.

[Jonesy]

Re: Advice For Young Men: Credit Cards

That is not correct. There had to be something else also included. Interest free is interest free. The price would not go up. The store has nothing to do with those offers.

Take Best Buy as an example. They may have a credit card and may offer interest free options but it isn't Best Buy the store offering it. It is a Bank or a Best Buy Credit, etc that is making the offer. Best Buy the store gets paid immediately and the Bank then collects the interest. Best Buy the store doesn't want to have the liability that you won't pay.

well yeah it's handled by a 3rd party so the company gets paid immediately and the 3rd part collects the extra fee's. Doesn't really matter because at the end of the day you the consumer end up paying more than the listed price. Keep in mind i am from Australia so we may have some different rules to you guys so i'm not saying it applies to every 'interest free' option that you see but that was one of the tricks i had seen.

I guess the main point it to do your own due diligence and add things up for yourself so you see exactly how much something is going to cost you at the end of it all.

[Gotmadskillzson]

Re: Advice For Young Men: Credit Cards

It's obviously not being taught in the majority of homes.

Being that USA is a nation of debt, I would say it isn't taught in 95% of american homes. Instead the motto in the USA is live the American Dream, get a house with a white picket fence, get married, get a dog, have 2 or 3 kids, 2 cars.

However in school it isn't taught how to properly go about living the american dream. So in the past 10 years with the American everybody should own a home program, you had millions of people getting homes with low payments for the 1st year.

What ended up happening was you had millions of people getting houses on credit, when in reality their income level was way too low in the 1st place to even get that house. Which is why you see so many homes in the USA in foreclosure now.

Because to me, if you got to rely on 2 incomes to pay the monthly mortgage on a house, then you shouldn't get a house, you should stay in an apartment or rent the house.

Also to me that was always the flaw in the american education system. They teach stuff that isn't needed for the real world. I mean why are they still teaching about dinosaurs, shakespeare, making stuff out of clay and crap ? Instead of teaching about debt, credit cards, loans, etc.

It is the same way with people get their income tax check. People go buck wild and buy the biggest & most expensive thing they can find, instead of paying off their debt with it.

I find it real sad when I see generation after generation after generation living in the projects or trailer parks. The grandma, the parents and then the kids with their own kids. It is like wow.

[fistofrage]

Re: Advice For Young Men: Credit Cards

Oh my, this drives me nuts. Who still frequently writes checks these days and why? Nothing worse than waiting in line at Target for some old lady to finish filling out her check...waiting for the amount, asking for a pen,asking for the date, having to show ID, having the cashier struggle to put the check into the check reader.

A lot of people (my mom included) do not understand that a debit card works exactly the same way as a check in about 1% of the time taken. You slide the card, enter your pin and the money comes out of your checking account...some how people don't get that.

I understand if it's for a rent payment or something like that, but I'm talking about at the grocery store or Home Depot or something. I litterally write like 5 checks a year...and it pains me every time I have to.

Debit cards are the worst thing ever for the consumer. Get a credit card instead and pay it off each month.

A debit card is a direct link into your bank account. It can cause you to be withdrawn if there is an error and then the domino effect of bounced checks, fees, etc. starts.

With a credit card, you can always dispute the charge before you pay the bill, with a debit card, they already have the money....Your money.