They should be teaching things like this in high school. Only a small percentage of schools teach finance and it is one of the most important things to know. I had no idea how stocks, mutual funds, bonds, etc.. even worked when I got out of HS.
Was that intended as a boast? Because it actually sounds more like you can't trust yourself to handle a credit card. Too bad because they when used responsibly they offer a great deal of convenience at no cost.
Why? Just pay it off every month. If you have $10 in your bank account, don't spend more than $9 (ideally you'd spend closer to $3). It's not that hard.
You know, debt isn't all bad. If used properly it can actually save you a lot of money.
Let's take Falhiem's example; I spend 10 years saving up $100,000 for a townhouse. If we assume an average APR of 2% over that 10 years, then I will need to put away $750 a month. While doing this, I will have to live somewhere, so I'll be renting a modest apartment at $800 a month. After 10 years I will have spent $186,000 on rent and savings to be able to buy a $100,000 townhouse. On the other hand, if I got a 10 year mortgage @ 7% on that townhouse I would have a monthly payment of $1160, and over 10 years I would pay $139,200 for the townhouse, saving myself $46,800 over the non-debt method.
If you don't use a credit card, you are actually getting screwed now that so many people do. Think merchants don't include the credit card fee (for rewards and cost) in? Responsible people reap lots of benefits from credit cards - I get about $50 back every 2-3 months (5% on gas, groceries, and pharmacy, 1% everything else). Or I could opt for gift certificates, flights, etc. That one's that pay cash are the ones not reaping the benefits you're already paying for.
To each their own I guess. I love using credit cards and paying them off in full each month because of the cash backs, extended warranty on things I buy, reward points, and what not. Having my pay being direct deposit, I rarely have cash on me. Only time I really use cash nowadays is when I go out with friends and we end up splitting the bill or something. Even then, I could always just throw down a credit card.
This post and infographic was REALLY overly complicated to basically say "credit card companies take commission on every credit card transaction, so they don't make all their money on consumers, but a lot on merchants"..... which I thought was common knowledge?
I actually agree that financial management, especially credit, should be taught institutionally. Not to retract responsibility from the parent, but credit management is integral into your future participation of "the real world". It's actually a lot more appropriate to teach this then to teach sexual education, being that the latter is much more personal and has a lot of subjectiveness based on your own morals, as opposed to financial and credit management, which has more black-and-white legal ramifications.
My parents never once uttered the word "credit" to me in my life prior to my first credit card at 18. Like a moron, my first 90 purchase ever on my first credit card ever ended up turning into a 1,000 dollar debt over the course of 6 years and various collections agencies. My credit score was shot from that one incident, and it was impossible to purchase a car, which I needed badly to get a job, to pay for pretty much everything since I moved out when I was 18.
Thankfully, after educating myself and a lot of patience and diligence, I have tier 1 credit. It took 13 years, but it shouldn't be this hard. Kids need to be educated.
First of all, in case that's what you were implying, if you don't have any credit history your FICO score isn't zero. To get a score down near zero, you'd have to have a horrible credit history.
You CAN get a mortgage (or a car loan, or another type of loan) without credit history, but you're not going to get a very good rate. Since the rate of your mortgage can mean the difference of several thousand dollars, it usually pays to build a good credit history prior to making those purchases.
Of course, if you can afford it, paying cash would be the ideal rate (0%) but most people have a hard time saving up that much in cash.
You may want to change your tune. I recently moved and due to the fact that I've never had a credit card (and thus no credit score) I had to put down deposits on all my utilities, and in some cases had to fax over documents that proved my identity since my SSN didn't link up to anything during a credit search. You also can get bumped up into a higher-paying bracket for car insurance if you lack a credit score. Even getting just a simple card, buying one or two things a month and paying it off promptly builds your credit score, which you'll appreciate down the line. Just doing things like paying your bills and rent doesn't cut it, you have to prove that you can purchase something with the equivalent of an IOU and hold up your end of the bargain before you can be trusted with larger loans.
1) most people don't pay *their* bill off every month. - Not true, about 65% of credit card users pay in full every month.
2) credit card *companies* make most of *their* cash from late *fees* or over the limit fees. - Also not true, with an automatic 2 to 20% income on every single purchase, most of their money comes from the retailers.
3) Credit card *companies* also charge you a minimum finance change. Even if you pay your bill off in full. of 50 cents to 1 dollar. - What? This just isn't true. I don't pay a thing to use my card. The credit card company is happy, I'm happy, the only one who pays for me to use my card is the merchant I'm buying from.
4) Credit card *companies* charge a list of *fees* to retailers so they can accept your credit card. - Yup, kind of the point of the article...
5) Most cards come with a yearly fee. little as $25 as high as $300+ - Yeah, but you can't complain, because the yearly fee isn't even in fine print, and if you don't like it, cancel. It's completely your fault if you pay that fee more than once.
6) Credit cards love it when you fall into the default trap.. Most people are carrying $10,000 as an average balance which they struggle for years to pay off once you start getting charged default interest rates of 23% to 32%. - You're completely correct here. I know it's a tough trap to get out of. I personally have never bought anything if I didn't have the money for it, but I have close friends and family who have. It is rough, and I believe the new credit card legislation is supposed to help ease this somewhat. The easiest solution is the consumer though, at some point personal accountability comes into place. Anyone who has been in this situation knew what was coming, but still acted irresponsibly.
Credit cards are a debt trap. - Only if used improperly. They're nothing but an easy to use tool for a majority of the population.
Purchasing a car on payments makes perfect sense, My car was $5,000 that would have taken me a couple years to save up, instead I bought it on payments so it's about $6800, but I get the benefit of having a car that's not a piece of s**t for those 2 years. I don't know about most people but to me paying an extra $1800 to have a reliable car while I'm in college is definitely worth it.
1fastdakAug 12, 2010Buried
They should be teaching things like this in high school. Only a small percentage of schools teach finance and it is one of the most important things to know. I had no idea how stocks, mutual funds, bonds, etc.. even worked when I got out of HS.
rbalikAug 12, 2010Buried
Did they really need a whole graphic to explain how transaction fees work?
brucealmightyAug 12, 2010Buried
Was that intended as a boast? Because it actually sounds more like you can't trust yourself to handle a credit card. Too bad because they when used responsibly they offer a great deal of convenience at no cost.
bonesehAug 12, 2010Buried
You'll need one to build credit so you can buy a car or house unless you plan on paying cash for those.
diuleiAug 12, 2010Buried
Why? Just pay it off every month. If you have $10 in your bank account, don't spend more than $9 (ideally you'd spend closer to $3). It's not that hard.
kaykfrinkAug 12, 2010Buried
You know, debt isn't all bad. If used properly it can actually save you a lot of money.
Let's take Falhiem's example; I spend 10 years saving up $100,000 for a townhouse. If we assume an average APR of 2% over that 10 years, then I will need to put away $750 a month. While doing this, I will have to live somewhere, so I'll be renting a modest apartment at $800 a month. After 10 years I will have spent $186,000 on rent and savings to be able to buy a $100,000 townhouse. On the other hand, if I got a 10 year mortgage @ 7% on that townhouse I would have a monthly payment of $1160, and over 10 years I would pay $139,200 for the townhouse, saving myself $46,800 over the non-debt method.
Debt isn't bad. Stupid use of debt is bad.
diuleiAug 12, 2010Buried
If you don't use a credit card, you are actually getting screwed now that so many people do. Think merchants don't include the credit card fee (for rewards and cost) in? Responsible people reap lots of benefits from credit cards - I get about $50 back every 2-3 months (5% on gas, groceries, and pharmacy, 1% everything else). Or I could opt for gift certificates, flights, etc. That one's that pay cash are the ones not reaping the benefits you're already paying for.
dalieuAug 12, 2010Buried
To each their own I guess. I love using credit cards and paying them off in full each month because of the cash backs, extended warranty on things I buy, reward points, and what not. Having my pay being direct deposit, I rarely have cash on me. Only time I really use cash nowadays is when I go out with friends and we end up splitting the bill or something. Even then, I could always just throw down a credit card.
wussAug 12, 2010Buried
This post and infographic was REALLY overly complicated to basically say "credit card companies take commission on every credit card transaction, so they don't make all their money on consumers, but a lot on merchants"..... which I thought was common knowledge?
NoFedAuditAug 12, 2010Buried
They make their money on deadbeats who overdraw their accounts!
wussAug 12, 2010Buried
I actually agree that financial management, especially credit, should be taught institutionally. Not to retract responsibility from the parent, but credit management is integral into your future participation of "the real world". It's actually a lot more appropriate to teach this then to teach sexual education, being that the latter is much more personal and has a lot of subjectiveness based on your own morals, as opposed to financial and credit management, which has more black-and-white legal ramifications.
My parents never once uttered the word "credit" to me in my life prior to my first credit card at 18. Like a moron, my first 90 purchase ever on my first credit card ever ended up turning into a 1,000 dollar debt over the course of 6 years and various collections agencies. My credit score was shot from that one incident, and it was impossible to purchase a car, which I needed badly to get a job, to pay for pretty much everything since I moved out when I was 18.
Thankfully, after educating myself and a lot of patience and diligence, I have tier 1 credit. It took 13 years, but it shouldn't be this hard. Kids need to be educated.
mescadAug 12, 2010Buried
First of all, in case that's what you were implying, if you don't have any credit history your FICO score isn't zero. To get a score down near zero, you'd have to have a horrible credit history.
You CAN get a mortgage (or a car loan, or another type of loan) without credit history, but you're not going to get a very good rate. Since the rate of your mortgage can mean the difference of several thousand dollars, it usually pays to build a good credit history prior to making those purchases.
Of course, if you can afford it, paying cash would be the ideal rate (0%) but most people have a hard time saving up that much in cash.
alpha_male65Aug 12, 2010Buried
no debt how do you plan to buy a car or a house. i don't think you have 200,000 cash in your account
darkefireAug 12, 2010Buried
You may want to change your tune. I recently moved and due to the fact that I've never had a credit card (and thus no credit score) I had to put down deposits on all my utilities, and in some cases had to fax over documents that proved my identity since my SSN didn't link up to anything during a credit search. You also can get bumped up into a higher-paying bracket for car insurance if you lack a credit score. Even getting just a simple card, buying one or two things a month and paying it off promptly builds your credit score, which you'll appreciate down the line. Just doing things like paying your bills and rent doesn't cut it, you have to prove that you can purchase something with the equivalent of an IOU and hold up your end of the bargain before you can be trusted with larger loans.
cynicaltylerAug 12, 2010Buried
"They" didn't hit you. You hit you.
drunkirishAug 12, 2010Buried
What happens to the kids whose parents don't know how to make smart financial decisions?
tinkafooAug 12, 2010Buried
I guess it's "omg fascinating" to a lot of people, but this is common knowledge for those of us who run our own business.
gbargerAug 13, 2010Buried
1) most people don't pay *their* bill off every month. - Not true, about 65% of credit card users pay in full every month.
2) credit card *companies* make most of *their* cash from late *fees* or over the limit fees. - Also not true, with an automatic 2 to 20% income on every single purchase, most of their money comes from the retailers.
3) Credit card *companies* also charge you a minimum finance change. Even if you pay your bill off in full. of 50 cents to 1 dollar. - What? This just isn't true. I don't pay a thing to use my card. The credit card company is happy, I'm happy, the only one who pays for me to use my card is the merchant I'm buying from.
4) Credit card *companies* charge a list of *fees* to retailers so they can accept your credit card. - Yup, kind of the point of the article...
5) Most cards come with a yearly fee. little as $25 as high as $300+ - Yeah, but you can't complain, because the yearly fee isn't even in fine print, and if you don't like it, cancel. It's completely your fault if you pay that fee more than once.
6) Credit cards love it when you fall into the default trap.. Most people are carrying $10,000 as an average balance which they struggle for years to pay off once you start getting charged default interest rates of 23% to 32%. - You're completely correct here. I know it's a tough trap to get out of. I personally have never bought anything if I didn't have the money for it, but I have close friends and family who have. It is rough, and I believe the new credit card legislation is supposed to help ease this somewhat. The easiest solution is the consumer though, at some point personal accountability comes into place. Anyone who has been in this situation knew what was coming, but still acted irresponsibly.
Credit cards are a debt trap. - Only if used improperly. They're nothing but an easy to use tool for a majority of the population.
tehprophetAug 12, 2010Buried
Purchasing a car on payments makes perfect sense, My car was $5,000 that would have taken me a couple years to save up, instead I bought it on payments so it's about $6800, but I get the benefit of having a car that's not a piece of s**t for those 2 years. I don't know about most people but to me paying an extra $1800 to have a reliable car while I'm in college is definitely worth it.
tinkafooAug 12, 2010Buried
that's why there's mommy and daddy