Thoughts on Credit from the 24 year old

[epilonious]

Well, I have started down the road of buying a house. On may 31'st, shortly after my 25th birthday, I'll be in the fabulous world of homeownership. One of the things I realized: Credit Cards are pretty much a complete and total waste.

I fell pray to the niftiness of credit cards when I was about 20. I had a bank, was visiting to upgrade my checking account, and they were like "hey, you can get a CREDIT CARD now"... it had a paltry $600 limit and I figured it couldn't hurt. Cut to 2003 when I was leaving college with about $10,000 in credit card debt that took me about a year to pay down... and that was with me barely buying anything. I had to pretty much go on a spending diet, transfer all the balances to one card that was "no interest for a year" and just budget the hell out of myself. I kind of wish I had learned to budget better BEFORE I got to college, but it just seemed like no-one was willing to teach me and everyone seemed to think I was smart enough to handle it on my own.

Here is a point-counterpoint for why credit cards are(not) the shit:

1. They are a happy beacon of a cashless society. You can carry one of these and then you won't have to carry any of that pesky robbable cash.

This is pretty much BS. You can carry a Debit Card and not have to carry any of that pesky, robbable cash. You get the same benefits of detailed statements, being able to call the bank if your card turns up missing... and really, for every "I was so glad I was able to freeze the card when it got stolen" story, there is a "and then Suntrust called me up one day and said they were sending me a new card because of a 'security concern' (IE: Suntrust fucked up)" or a "and then it turned out to be a case of identity theft.." story.

2. "Emergencies"

The car broke down, the doctor needs $500.... I have to have this outfit, I seem to be broke but want to buy this movie, I need to get groceries and I can't seem to control my spending so my checking account is empty.

3. "They build credit"

Well, they show up on a credit report, but they really don't build that much credit. In fact, if you get a card, use it once, and cut it up after paying it off, you will probably have better credit than if you use it over and over and over... and really, it still won't be nearly as beneficial as having a car-loan or a mortgage in good standing. THOSE sorts of things actually substantially build credit. Credit Cards are about 10 times more likely to fuck up a credit report if you have a "high rotating balance" or a history of late payments or bills going to collection

4. Discounts/points/rewards

These things always seem to break even with finance charges and fees.

So yea. I think the one benefit of a credit card could be overdraft protection. I mean, I still use mine occasionally but very, very rarely and usually it's right before payday and I immediately pay it off after I get money into my checking account again (and my checking account is usually low because I am stuffing money into savings accounts like ING)

Otherwise, I am in no way a licensed financial advisor. Just a guy who has seen credit cards screw over a buncha people... and I guess happy that my credit has bounded back to something so good right before a house closing.

[Elenloth]

As someone who took in The Dolans with breast milk and Clark Howard with AP US History, and who has two credit cards and a credit rating in the high 700's, I have a few things to say too.

I got CC #1 when I went off to college. My parents said it would be a good thing to have, to use for emergencies. I spent maybe $100 a month with it, usually on things like Lord of the Rings advance movie tickets and restaurant trips. (It was far easier to drop off my bill at the college post office than walk into town to go to the SunTrust ATM.)

CC #2 occurred after I graduated from college, and started paying all my own expenses. (Yes, I guess that means I am a spoiled rich kid, that I didn't pay my expenses while I was in school.) It is a "rewards" card, and gives me 5% back on gas, grocery store, and drugstore purchases, and 1% back on all other purchases. It has no fees, no finance charges, nothing. So far (since November) I have gotten $120 back. This rate of getting-money-back will not continue, since the main reason the total is so high is because I've made a lot of major purchases recently (e.g. a mattress), but even so. It's money for nothing, on things I would have bought anyway.

I pay (and have paid) every credit card bill in full, on time, every month. Ever. In my estimation, this is the ONLY responsible way to own a credit card, because 20% interest is so not worth it. But I have a ton of friends who carry balances so I try not to breathe down their necks about it. I don't have an official "budget" but I do have all my incomes and fixed expenses (this includes savings account deposits) written down on a sheet, so I know what my discretionary spending is and can ballpark around it.

Debit cards are dangerous because people can just clean you out, and you have no protection. I'm nervous about carrying my ATM card in my wallet, and I've never used it as a debit card. (It is a good way of avoiding ATM fees, though, if your bank doesn't have ATM's in your area--buy a soda at the grocery store and get cash back. At least, I've *heard* this works.) But I guess if you've got it in your wallet anyway (i.e. for ATM usage), you may as well use it to pay for things. Incidentally, my parents have never used an ATM card or debit card for ANYTHING. I think the one their bank gave them is in the safe deposit box, but I'm not sure.

Your point about "emergencies" is well taken. People can make bad decisions.

Credit cards do build credit, as I understand it, if they are used correctly. I agree with you that more people need to be taught what "correctly" is before they mess up their credit ratings, because a lot of people (like, it sounds like, you) do so out of ignorance.

ING savings accounts are the BEST EVER!!! ZOMFG! I love mine. My rate just went up! Huzzah! CD-rate savings accounts for EVERYBODY!

And I'm totally not a licensed financial adviser, either, so it's totally possible I'm wrong on a ton of things. But this is just the way I understand it.

Peace!

[epilonious]

But you are not most people.

Most people I have seen pretty much get screwed after the credit cards all do their initial rate hike.

I guess one thing we can both agree on is better counseling and better examples about credit cards. It's just so easy to think of them as little magic money machines and not little radioactive things with unreasonably high limits.

[Elenloth]

Heeee, radioactive! That's such a good adjective to use for it.

And yeah, I agree. Mandatory "life skills" class in high school? The four years are useless enough already, may as well salvage *something*.

[Jay]

It's just so easy to think of them as little magic money machines and not little radioactive things with unreasonably high limits.

Hmm...add me to that list. Yes, the one titled "Credit Pariah". That's a tough hole to dig yourself out of. But it is an invaluable lesson and it's one that can't be accurately relayed.

In all honesty, if you had it all over to do again, how much would you change? I'm not terribly sure I'd change much of anything.

[rambleredhead]

When I was younger - the evil credit cards had me and took over my life for a time then I met my bf and it only made matters worse when he would say let's go to hawaii, put it on the card, rental car - put on the card then a week later I would have thousands of dollars on the card and he would go I will pay you back when I get home. Now at home and he seemed to forget that we did this and that....so we would fight and fight.

Years go by, we break up and I am stuck with the debt and I thought I am never going to get out of this but then I had started a new job and made some money and did everything I could to pay that debt off and I am happy to say that my credit and my life is back on track and I am never going to make that same mistake ever again.

I hope people will listen to your advice and not ruin their lives with the added stress of abusing the credit cards.

[/url]