Fast Running Blog

Hi all. So I thought it would be a good idea to apply for a credit card since I have used responsibly a debit card since 2004, never once overdrawing. I am a reliable and responsible kid and I applied and was approved for a VISA credit card with a 3500 dollar limit. I have a question though. I signed up for online statements and free bill paying. I paid my car insurance with the card and use it now for everything I would use my debit card for as I get 1-2% returns on everything, which translates to in a couple months I will get a $50 credit to take off of a bill (kind of cool, right?!). My questions is regarding statements because Im' not sure how they work. I paid off my balance that showed online about a week and a half ago, but I guess my statements end on the 16th of every month and then they give me until the 10th of the following month to pay. Do I just pay off whatever the "New Balance" says on the statement ? i.e. this one says I owe only 78.59 left since I paid my 324 bucks off for car insurance already. Also, does this mean that anything I'm buying now will show up on the following month (November's) statement?

My only tip is to cut up the card and cancel it. I'm 29 and don't have a credit card, and I get around just fine (own a home, etc.). Rewards are kind of joke, and at some point the card company will mess you over, or you will forget to pay a balance, which negates any rewards.

Regarding the statement, just check your online profile and see if you currently owe anything. If it says "0", then you are fine. Paper statements generally have a lag, and don't show very recent activity. You can always call Visa if you have any doubts.

Don't call Visa if you have a question. Call the 800 number on the back of your card. It goes to the bank that issued you the card, or their representative.

Your statement should show a statement balance as well as a minimum payment. If you want to pay off the card every month (which is what I do), pay the statement balance. That statement balance is less than what the current balance of the card is if you look at it online, because you've had more transactions since the closing date of the statement. Those transactions that happened since the closing date of the statement won't be due until the next statement. If you always pay the statement balance by the due date, you won't pay any finance charges.

Yeah, that's what I meant. Call Chase or MBNA or whoever.

When purchases show up on your card statement depends on your statement cycle.  As opposed to a debit card, which draws money directly from your bank account, and which purchases show up immediately, you may not see your purchases on a credit card statement right away.  Although since you are viewing your card online, you should see the purchases fairly quickly.  Here's what I will say about credit cards - they can be good to have in an emergency, but that's about it.  We have been in the process of slowly getting rid of all but about one of our credit cards, and that is from the bank that we have our checking and savings accounts with.  Credit cards are an easy way to dig yourself a bit hole with debt, and the interest rates on a credit card are almost always MUCH higher than anything else.  If you pay off your balance every month, that's better.  My advice - if you are going to have a credit card, be responsible with it and don't use it for purchases you can't really afford - save up for those.  If you are concerned with someone stealing your debit card pin, use it as a credit card.

I have a credit card for two reasons:

a) Cashback
b) Convenience

I always pay off the balance 15 days before the payment is due.

I have also used credit cards to get a no-interest loan before to help with the mortgage. Take credit card with no interest in the first 12 months, and either no or a very small balance transfer fee. Max it out and pay off a loan that has an interest that would be higher than the credit card balance transfer fee over the 12 months. Over the next 12 months pay off the credit card instead of that loan. Make sure no balance is left on it at the end, and make sure you do not miss your payments - the moment you do you lose the no interest part, and now you are paying a heck of an interest.

After 12 months throw away the credit card if it has no cash back. If you still have a balance, find another credit card offer with no interest and repeat. This time you have more options because some credit card companies will not give you a balance transfer in the form of a blank check - they want you to give then a competing credit card to transfer from. Well, give them one! Not the use of the credit card that the credit card companies have intended, but I figure it is only fair to beat them at their own game and rub it in their face.

Never, never, never, absolutely never carry a balance on a credit card. They say a lottery is a tax on the mathematically handicapped part of the population. Carrying a balance on a credit card belongs to the same category. Do not subject yourself to this form of tax.

This thread is great for upping blog revenues. Adsense provides contextual ads, so if we are talking about money, the ads will be financial. Those pay very very well, much better than running ads.

Regarding convenience, you get the same convenience with a VISA check card.

Regarding cashback, if you are like Sasha and are extremely disciplined, you will come out ahead. But if you are like 95% of Americans you will effectively lose all rewards by either A) carrying a balance; or B) impulse buying. Studies have shown that people spend significantly more (~20%) when they spend with plastic than with cash (that includes debit as well). The emotional connection of spending becomes lost. Fast food restaurants have shown that people spend almost 50% more when buying with plastic. It's too convenient. Again, if you are very disciplined, and are living on a written budget, you are not likely to impulse buy, so perhaps not an issue. But credit card companies are profitable for a reason.

Regarding emergencies, try to carry about 6 months of living expenses in a money market account. In other words: have about 10K in cash. Also, carry some extra $$$ in your checking account. I can access my money market from an ATM, and I can get to it anytime. Ample cash can buffer virtually any emergency. And most emergencies, you will not need money immediately. I can't think of any situation where I'd need to come up with $10K on the spot.

Anyway, I realize my views are on the fringe of how people tend to do things. Take it for what it's worth. But also ask yourself: We are a credit-driven country. How is that working out for us?

Use caution in relying too much on those VISA Check Cards and their ilk.  The problem is that they access your bank account *too* conveniently!  Even running the card as credit doesn't protect you from the possibility that your card data could wind up being stolen, which is a really BAD deal because, unlike credit, the money comes right out of your account.  I made the mistake of using my Visa Check-card on my PayPal account, which got hijacked and had $1300 withdrawn from my checking account before I was able to freeze everything.  Scary part was that they could've just as easily cleaned my checking out and beyond since I've got overdraft protection.  Cleanup of the whole mess took about 1 week (made more difficult because I discovered it when out of town), which meant I was surviving on my credit card and the cash I had on-hand.
Credit cards make it easier to recover if your card has been hijacked.  I got a phone call one weekend from my MC company asking if I'd bought anything from AntOnline lately.  Uh, no.  Someone had gotten those card #s and bought things from three places, two of which MC managed to stop.  Ten minutes after the MC company call, QVC called saying a purchase I'd made was "suspicious" and they were rethinking the approval, so it wound up being just an easy card replacement.  The important part was no real $$$ were at risk since it was credit, not debit.
Another issue with Debit cards....if they're not Visa/MC, you don't have the same buyer protection...you could be held responsible for more than the first $50 in fraudulent charges. 
Credit cards are good to have in a pinch but require careful management....don't spend what you don't have and you'll be safe.  When you buy something on the credit card, identify the actual money you have on-hand that's going to go to pay it off and you'll stay safe. 

Sasha, the ad up top is still for Mizuno, sorry.


Man, Paul, I wish 10k would cover 6 months...  :o

Yeah, I guess 10K doesn't go as far as it used to back in the pre-kids days. But you get point. $10K, 20K, whatever fits your particular household. I would think 10K would be plenty for someone without kids or a mortgage. The point is to borrow from the "Bank of Jon" or the "Bank of Benn" rather than from Chase if life knocks you upside the head.

Oh, and the money market emergency fund has "rewards" too...usually about 4% interest. Enough to buy Christmas presents, or to cover little mini-emergencies if you pile enough cash in it. Food for thought.  :)

One word of caution if you use the no interest terms offered -- be sure somebody knows when the payments are due.  My father has always loved taking advantage of no interest or low interest credit offers and paying them off before the balance is due.  To me its not worth the risk and time involved.  Anyway, he had about 4 such cards which were coming due when he had a stroke.  Remarkably, as he was in the intensive care unit on death's door, fortunately he had the presence of mind and the ability to tell me about these so I could pay them off.  Had he not been able to tell me how to pay them off he would have been hit with the interest for the whole period of time, which would have vastly outweighed any benefit he received from playing the difference between the interest rates. 

Benn, a credit card is easy to manage just as long you are disciplined in paying up. If you signed for $1,200 in one month, you -should- have that same amount in cash in your check or savings acount to pay before the cards deadline. If you do this, the credit cards are very easy to use.
And yes, after you get your statement (or better said after credit card cut date), everything sign on the card is for the next statement....

http://www.daveramsey.com/fpu/home/

learn to live debt free.

Thanks for all the tips. I got my credit card and enrolled in paperless statements as well as free online bill pay. Essentially I am doing everything I did with my debit card, only now with the credit card and paying it off as soon as the statement is emailed to me like 2 wks before the payments due. Is this the right way to do it? I just figured as long as I'm responsible it is the smart thing to do, since I get % cash back with my credit card, which will add up over time, and I don't with my debit card. i.e. just bought 2 pairs of shoes with my credit card and on top of already saving 20%, I earned another 2-5% cashback :)!

Great Benn, just remember to pay the full balance.
And don't wait for the statement. Write in your calendar the dates you are supposed to pay (it will be the same month after month). 

Cool! Thanks, Eric! Question for you.. I checked via the free credit report what my score was and it was between 695 and 720 through the 3 different bureaus or whatever that responded. Is that pretty good for not really having a credit card before?

Benn:

If that helps, being 35 years old I have no clue what my credit score is. Have never been curious enough to go through the hassle of finding it out. I plan to live the rest of my life in such a way that if some crook had stolen my identity and ruined my credit score I would never know.

HAHA You renegade you! Well you wouldn't know until you went to apply for a loan for a car or something and then were denied!

Benn, have no idea if that's good or not.
Remember, the real business side for a bank in the interest they could charge you, so they prefer people who don't pay the balance (but do pay something) than people that pay full balance.
I agree with Sasha...why worry! Enjoy and stay debt free as much as you can!

Banks don't like me. I pay full balance every month on time, and I've never taken a loan for anything. See why they don't like me? I not a good business for them.

I'm with Sasha. My goal is to pay off my house in the next few years, and then have a "zero" credit score seven years from then. Then I'll buy my next house with the 100% down plan. In case you can't tell yet, I'm a big Dave Ramsey fan. By the way, you don't need a credit score to buy a house. You just need to find a mortgage company that does manual underwriting instead of straight FICO lending. Pay all your bills on time or early, and generally behave well, and you will qualify for a prime mortgage.

And who wants a car loan anyway?? Without debt, we would have something called "money". Money can be exchanged for goods and services. ;-) Just save up the money and buy whatever you need.

I agree to not borrow for cars.  Save up and buy the best clunker you can, then the next time, buy one a bit less clunky, etc.

I also always pay my full balance on my credit card.  I do like to have credit cards for travel and online purchases.  I suppose there's ways around the system, but the system is not evil if you are savvy.

Banks don't like me either.  No fees from me!

I don't think there's anything wrong with buying a primary residence with a mortgage, especially if you would otherwise be paying comparable rent.  The danger is the slippery slope us americans have when we keep wanting bigger and bigger homes, with nicer and nicer features.  I've been trying to sell my dream home, which I live in and enjoy, except for the nightmare mortgage.  So learn from my mistake--don't bite off more than you'd like to chew for 30 years--the gum gets stale. 

Sidenote: Try selling a home in this market, not good. :-[

My parents signed up for somenew bank where they are effectively their own bank and all their assets are liquified. Their Mortgage payments were 1600 dollars a month last year. THis past month my mom said they paid 240 bucks . house will be completely paid off within 2.5 yrs now :). Theyre goign to help me buy a house with their bank thing that they have all their money in that way it will pay for itself and then I just pay them every month the steadily decreasing principle :). great idea. it came from another country, either england or aussie land i think

I'm still a student, and will be for the next few years. My wife and I have a 8wk old baby, and right now, $0 to our name (money that isn't from stafford subsidized loans). But, we have had $0 credit card debt for 3 years. I make sure I have the money to pay the bills and pay for food and necessary things. We try to live as though those "options" didn't exist. Even with the student loans we do have we try not to take more than necessary to pay for tuition/books/etc.

We will probably live "poorly" by world standards for the next few years- but years from now we will own a home outright, and have more than enough to do whatever we want, buy whatever we want, with $0 debt, and not have to answer to anybody calling for their money. And, we can use our money for good. Better to live off of canned food and dirty clothes now than have to still be doing it when I'm "retired".

Cars are one of the worst investments. Car loans are even worse. Sadly, many people think they are being smart by paying thousands more for a car than it is worth over many, many more years than it would take to save the money and buy it outright. Even worse is that the extra money spent on those car payments could have been saved and MADE YOU MONEY! But, its so much easier and better to have the convenience of buying a nice car right now, right? Growing up, my dad was a high ranking Army officer who drove an old station wagon. He still hasn't ever bought a new car. His last car he bought in 2002 was a 1999 Ford Taurus (sweet car I know huh) and when he bought it, he dropped a couple thousand in cash on the table and drove it home the next hour. It has a CD player. That's how you know it was good deal. And he has many, many more dollars with 0's to his name than I do.

Well from what I've learned, or heard and seen I guess, is that cars depreciate in value almost from the moment you drive them off the lot. My parents didn't own their first new car until about 10 years ago, and I am intent on driving my 2001 chevy prizm until it busts. I just hit the 140,000 mile mark this week on it :) And it's still truckin like a beast. I read somewhere that most millionaires drive used cars. And it makes sense. A used car in many cases is perfectly good as a new car.

As far as finances I am officially screwed. I go to a private college that was gracious enough to give me a full tuition scholarship for academics as an undergrad (saved me in the neighborhood of 85,000 bucks!), but I owe 13-14k for room and board for undergrad. And then on top of that, I have had to take out loans to pay for grad school. I just don't have the money to pay for it up front. So for a master's degree I'm looking at about 35-40k :(. Emma only owes about the same as I owed for undergrad and she aid she's going to pay that off in one lump sum in the next year or two when her CDs at the bank mature. As for me I have about 6-7k in savings right now (It's tough when you make $8.08 an hour lol). I just need to be done with school so I can get a REAL job!

The Millionaire Next Door by Thomas Stanley is the most comprehensive study on the characteristics of those who have money (vs. those who don't). It's a very good read, highly recommended. It discusses the car thing as well.

I hear you on the student loans. My wife and I both went to private colleges for undergrad and left with substantial debt (although this was almost 10 years ago, so tuition was much less). Then I arrived at grad school flat broke, and had to take out more loans just to eat for the first semester until my RA/TA kicked in. After paying the minimums for a couple years, my wife and I finally got sick it, got our act together, started living on a written budget, and pored everything into paying off those loans.  It ended up taking us 13 months to kick Sallie Mae out of the house, and we live in Logan, UT ("America's China"), so we don't exactly make a whole lot of $$. So you are far from screwed; just focus after you both start working full-time, and you can pay off those student loans in a few years. Just don't take 20 years with it. :-(

If I could do it all over again, I would have delayed grad school for a year or two, worked full-time, and saved the money so that I could have actually afforded grad school. I also semi-regret going to a private undergrad college. Having seen what a public school is like during my grad work, I think the education you get a "standard" private school is overrated. Obviously Harvard or MIT will get you something, but no one out here has even heard of "Calvin College". Bottom line: it didn't help me get a job one bit. Oh well.

Yeah I think I should have done what you suggested that way I'd be less in debt. I only stayed on to get my education degree here at St. Rose because it's the top education school in NYS and New York teacher accreditation is the tops and can basically help you get a job anywhere.

Benn believe it or not we are still driving our 1990 Geo Prizm (well mostly our son Tyler, neither Kim or I drive it much anymore), the first new car we ever bought right out of college when we were young and dumb. Now that we're older and just slightly less dumb it's used cars for us, paid for with cash. The Prizm is pretty much a rust bucket nowadays, with a coat hanger for an antenna, but it still runs like a charm and gets decent gas mileage. I'm hoping to make to 20 years and 250,000 miles.

No I am not a millionaire......yet....

Wow Tom, that's exactly like us. We bought a brand new Subaru Forester right out of college. I feel dumb about it now, because that what you're NOT supposed to do! I imagine it will be the only new car we ever buy. However, we managed to pay it off the loan quickly, and it's been a great car with good fuel economy. It's now over 5 years old with 50,000 miles, so my goal is to drive it for 20 years and 200,000 miles, and then give it to our son, who will be near driving age by then. :-) That is, assuming gas-powered cars are still legal by then.

In 15 years? Will we still have oil?  ;)

We'll still have oil for another 50+ years. People have exaggerated, but there still is a need for alternative energy. But there is plenty of oil, especially if people would get rid of the 3 mpg Hummer guzzlers.

This sounds like the "bank on yourself principle" I have heard something about, although it may be slightly different.  With what I heard about, you invest in a special type of life insurance that is dividend-paying and allows you to overpay the premium.  The amount of dividends you earn is based on the amount you pay in, and if set up correctly, the amount of dividend you earn does not depend upon whether you "borrow" against the funds in the policy or not.  There is a website where I found out about it:  http://www.findoutmorenow.com.  We are seriously considering starting to do this as soon as possible.  Does this sound similar to what your parents are doing, Benn?

My wife and I went to BYU. It is a private college, but it does have very reasonable tuition. Somewhere around $2 K per semester. We did it without debts.

Oh, definitely nothing wrong with buying a new car when you're a millionaire! Then you can afford to take the hit of the devaluation. It's just interesting that many of them don't bother. Also interesting that many of them live in middle-class neighborhoods, don't pay a lot for a wristwatch, a suit, etc.

All I know is that it's like taking all your assets and having them in a bubble they said, and then using it to pay for everything. They read some books about it, and the guy that started the program has like 8 or 10 houses he's bought in just a couple years without ever actually paying for them.. Your "bank" i.e. "bubble" pays it all for yuo!

I think a lot of that comes from having spent years saving and try to find cheap deals. Once you've got the money, you've already trained yourself to live without it!


Sounds interesting...but what happens when the "bubble" bursts?

If it sounds too good to be true, it usually is. Finance is best when kept very simple. Live on less than you make, and pay down the house with what's left. It's hard to get messed over with this "program".

It doesn't burst that's the thing :)! And if you ever need money you just write yourself a check from your bank! It's genius

What this program talks about is the misconception people hve about mortgages. They say the worst thing you can do is pay down the "principle" on your house. What it does is it works to pay off your principle and interest for you while you sleep! My parents ahve seen their mortgage payments drop 75% in only a year!

Alas, BYU is a bit of novelty when it comes to private school costs. $2K is truly exceptional, esp. for quality of education. Most private schools are over $20K for year these days. The cheaper ones anyway. I don't know what Amherst, Emory, or Brandeis goes for these days. :P

But I don't think it's worth it. Personally, I had a good "college experience" at my private school, and I benefited from getting a Christian education, but it hasn't helped me in the job marketplace. I've found that who you know (networking) and your actual work experience is the most valuable. A diploma is mostly just a piece of paper, especially 10 years out.

Benn:

There is no free lunch. Somebody has to pay for it. If you are not paying it, then somebody else is. It could be your parents, your children, or the taxpayers around the country. More often than not it is you yourself out of your own wallet and double or triple the amount some time in the future.

I would second Paul's advice. Spend less than you earn, pay off your debts, after that, save, save, save. Maybe once you are secure against dire straits allocate a small portion of savings to experimental investments - who knows, maybe you can start up another Google. But do not do that until your house is paid off and you have some emergency untouchable cash saved up.

Well I am doing well with my credit card thus far :) I pay off the entire balance every month the day the statement is emailed to me :-D! Yay! As for saving to buy other stuff, right now I have a jar to put money in that I'm going to put in the Wedding Savings Account. Aside from that I don't have freed up money to do any of my own investing. But I have faith in my parents' "self banking" plan. It is working wonders for them so all I have to do is be willing to give it a try I figure. SO long as the job market is okay and I get a decent job. The bookstore is fine for paying for car needs and food right now, but no way I could afford rent on that junk pay.

so ive made all my payments on the first day my e-statement comes.. i wish they attached your credit score at the bottom to find out if it is actually helping your credit number or if I'm just playing into their game!

If you are paying no interest, and getting cash-back, it is the credit card company that is playing your game.

Good job Benn, keep it up.

It will help your credit score.  Your credit score is something you build up over time, though.  Paul and I were over 800 on all three companies when we checked for refinancing this last month. It's a combination of alot of things, but not using credit you have access to (unused credit lines), your credit history, and paying on time are big components.  Those who have the best credit score tend to need their credit score the least, though having a great credit score is necessary right now if you need a mortgage or to refinance.  Its a tough mortgage market out there, so we are grateful we've been so careful with our credit.

What Michelle is really saying, Benn, is she would love to co-sign on your next loan...  ;)

Oh well. Easy come, easy go. With annual fees and loss of incentives, I imagine many people will switch to using debit cards.


(bolding added for emphasis)

full article
http://news.yahoo.com/s/ap/20090520/ap_on_go_co/us_congress_credit_cards

I like my cashback check, but I would take the drop in prices from people being unable to stretch their income with credit cards instead.

I am sitting in the airport waiting for a flight to Fairbanks for the State track meet.  I flew to the regional meet in Juneau last week.  Total cost for two trips totaling over 3000 miles?  ... $15 dollars since I used miles from credit card purchases.  I always pay my CC bill.  I do it online with direct transfer from my checking account.  The card costs $30/year but I get 2-4 free tickets plus one half price fare each year.  Bottom line is as long as you pay the bill a CC can be a big plus.

I haven't read all the posts but what I did is I went to my credit union and said "what can I do to make sure I have good credit down the road when I want to buy a house etc etc."  The loan officer then helped set me up with A) a small overdraft protection on my checking account which acts like a loan but if I never overdraw (which I don't) it will never affect me negatively,  B) a credit card with a $300 limit and a relatively low interest rate (I think it was like 15% or something), which I rarely use at all, and C) a small loan against a certificate savings account which I paid off in a year of small payments (Apparently,to get the full benefit of having a loan out you should be paying it off for at least a year)  So basically even if I maxed out every line of credit on my accounts I would be able to pay them all off in full in a pinch with the money I have, but I'm still getting a lot of benefit from it credit wise. She said that to really make a good credit score you should have 3-5 lines of credit out and be making your payments and stuff on all of them.   I think the idea is that it doesn't necessarily matter how much money you have on credit, but rather it matters that you have a few different types of credit lines open and that you are managing them responsibly.   

I've had my credit card with citigroup now since September.. Paid the balance each month in full the day of my statement. I have seen my APR % drop from 18% to 12.24%. In addition, I got a check in the mail for 73 bucks last month. (Cash back incentive). In effect citigroup just paid for a couple people to eat at my wedding! Woot!

That's awesome Benn. Keep up the discipline.  You have a good head on your shoulders.