Disturbing financial statistics

[HaleyB]

As far as credit with NO income. I do not understand how this is remotely possible. I got rejection after rejection with all those stupid credit apps in college. I had to go and get my own secured credit card with a whopping $250 limit. Oh how I miss those days. I was much better off without the plastic anyway.

I was offered card after card in college. I only accepted one, Chase Visa, because it had no yearly fee and a good rate. I still have it. I had friends who got rejected so I have no idea why I got them. Maybe my friend who laughed and said using my parents address as my primary address was what did it. "Why don't you just tell them you live on your parents estate?" I didn't think of it as an impressive zip code. I did work summers and had a savings account with some money in it.

 

[LoriMistress]

This doesn't suprise me at all. Though, DH and I have excellent credit, and the total debt we have is about $4500 to our name. The car will be paid off in December. So we're not totally screwed. Though, we are planning to buy our first place.

 

[disneysteve]

My son is away at college and he has a cc, but it is our account. When I was 18 my Dad had me open a card in my own name so that I would have a credit history. He also said to use it every now and then and then to pay it off right away. Is this still a good plan?

I think that's a good plan as long as the kid is responsible enough to be trusted with the card.

Keep in mind that a credit card isn't the only way to help establish credit. When I was in college, I had phone service in my name. I had cable TV service in my name. Stuff like that also helps establish your credit rating. I had no trouble getting my first apartment when I finished school. I did have a CC but it was a joint account with my father so I'm not sure how that contributed to my credit rating but I guess it helped.

 

[nowellsl]

My 21 year old daughter is a college student and she has 2 credit cards (student cards). She always asks me before she uses it and I have access to her accounts on line. She does use them occasionally to keep them active, but pays them when the bill comes in. They have come in handy when she's had to buy books before she got her scholarship money - which sometimes comes in a few weeks after classes start. She checked her credit score recently and surprisingly it was 720. Which I thought was good with a history of less than 1 year. I think she would charge a lot more if she didn't know I was monitoring her accounts!! Some kids would resent the parental intrusion I'm sure, but It works for us! Our goal is to get her out of college with no debt whatsoever - so far so good!

 

[Chicago526]

This is basically what we're thinking too. We have been saving since before our kids were conceived, and we expect to pay the following:

In-state tuition at a state university (we live in a state with a wonderful public school system and 16 schools from which to choose) for 4 years. If they happen to choose a major that literally can't be finished in 4 years (for example, architecture is now a 5-year degree, and nurses are required to do summer school before their junior year), then we'll pay for that expense too. We'll also pay any fees attached to their tuition /classes. But we won't foot the bill while they earn 4-year degrees on the 8-year plan. If they choose a private school, we'll still pay the portion that would've gone to a state school; they can make up the difference with scholarships /loans. If they get full-ride scholarships (a very real possibility for our oldest), then I'd figure out something to do as a financial reward -- perhaps a car, perhaps X amount for spending money (negating the need for a job), perhaps an IRA -- but we've saved that money for the kids, and we'd do something for them with it.

We'll pay for a dorm room or suite, depending upon what's available at the college of their choice. After their freshman year, if they want to live in an apartment, we'll give them the cost of a dorm room to apply towards rent /utilities, and they will have to make up the rest through their own efforts. We'll also pay for a meal plan so we'll know that they'll never go hungry.

We may or may not provide a car during their college years. If they choose to live on campus, they won't need a car. If they choose to live at home and attend the state school 20 minutes down the road, the dorm-room money will go towards transportation instead. If I had to guess right now, I'd guess that one of my daughters will "go away" to school and the other will live at home and commute.

We'll give them each a nice, new laptop as a high school graduation present -- it's a need these days. We'll continue to keep a cell phone for them on our contract during their college years (that only makes sense -- an extra line for us is only $10/month, much less than them getting a whole new contract). And we'll continue to carry them on our health insurance, and we'll pay for things like glasses and dental appointments. I'd take them on a back-to-school shopping trip in August to pick up jeans, tennis shoes, and notebooks. I'd make sure to tuck some computer disks into the Christmas stocking to refurbish those things mid-way through the school year.

That covers all the BASICS. Beyond that, I'd expect them to work a few hours per week for spending money. I'd expect them to pay for meals out with friends, new outfits for a dance, etc. If they have to do without these things, it's not the end of the world -- they'll have all their needs covered.

Unless they make some terrible mistakes, they should be able to graduate debt-free.

Obviously, all this is based upon GOOD GRADES. If one of our girls goes away to school and brings home a first report card full of Ds and Fs, then the deal is off. If that should happen, we'd investigate the possibility of transfering to the local community college or that afore-mentioned state school 20-minutes from home.

WOW!!! This is exactly what DH and I have planed for OUR future kids!!!! Great minds think alike!!!

 

[meuseman]

Keep in mind that a credit card isn't the only way to help establish credit. When I was in college, I had phone service in my name. I had cable TV service in my name. Stuff like that also helps establish your credit rating. I had no trouble getting my first apartment when I finished school. I did have a CC but it was a joint account with my father so I'm not sure how that contributed to my credit rating but I guess it helped.

Steve,
I have agreed with almost all of your points over the course of this thread. However, I graduated from college 3 years ago. I too had all of the utilities in my name when we lived off campus. None of those accounts ever made it onto my credit report to raise my score. Not sure if it is the companies that we use around here, but even now, I have no utility accounts on my credit report. With out those accounts being reported, they have no positive effect on a credit score.

My credit score is affected by the 2 credit cards that I obtained in college. They lengthen my credit history. Without them, my credit history would have been 3 years shorter which is a big negative.

 

[stemikger]

Credit Cards at the crack cocaine in the personal fiance world.

When I tell people I hardly ever use my credit cards and I really don't need one, I get looks like I'm crazy.

And when I told my father in law who is in his 70s and still carrying a mortgage bigger than mine, that I want to pay off my mortgage he looked at me like I was totally nuts.

Oh well like Dave Ramsey says (I'm weird and weird is gooood).

 

[joksten2000]

I grew up with the idea to save save save. My Mother taught me to be that way. I've always paid the CC every month regardless of the total. I have done without some things but retired at 58 Don't work just play. My DW retires next Oct and hope to cruise 5 or 6 times a year. I feel bad for the people who lived high and wide. Memories are nice but having fun now and not worrying about anything is much better. I also take the whole family on vacation every year. Take courage young people, Thrifty pays off in the long run.

 

[staceyfe]

I grew up with the idea to save save save. My Mother taught me to be that way. I've always paid the CC every month regardless of the total. I have done without some things but retired at 58 Don't work just play. My DW retires next Oct and hope to cruise 5 or 6 times a year. I feel bad for the people who lived high and wide. Memories are nice but having fun now and not worrying about anything is much better. I also take the whole family on vacation every year. Take courage young people, Thrifty pays off in the long run.

This is inspiring and pretty much sums up my lifelong plans/dreams. I'm 33 and DH is 36. We live below well below our means now but also use a little $$ to have some fun too. The goal is to retire in our 50s with no debt and be able to travel with no financial worries.

 

[disneysteve]

I graduated from college 3 years ago. I too had all of the utilities in my name when we lived off campus. None of those accounts ever made it onto my credit report to raise my score.

My memory may be faulty on that point. I graduated almost 20 years ago.

 

[crazelion]

I never took a math class in college - scared of it. I'd been out fifteen years when someone said "hey, why don't you do stats" and my last math class had been high school algebra.

The funny thing was I won't take calcus 4 instead of Statistcs. But could not because it was not offer that semster and I need another math class to get my degree.

Still until this do I do understand Statistics.

I had credit card during college but did not use it often. I was very cheap during college did spead money much at all.

I still is that way to this day. I only use my credit card when need to for unexpected expenses because I am short on cash.

 

[Free4Life11]

Well everyone on here seems so financially responsible. I guess I'll break the mold! I've got 2 credit cards, each with a balance, that have a combined balance of about $3800. I've also got quite a few school loans.

I guess it doesn't really bother me much. I figure I've got a long life ahead of me. My parents have a lot of debt so I guess I never had that "fear" of debt that so many people seem to have. In fact my dad was the one whole told me that credit cards are like a short term loan.

I'd love to be debt free, but it's going to take a long time and I'm really not disciplined enough to stick to a hardcore plan at this point in life. I don't bring in enough money to really make a big dent. I just try hard to not charge new purchases and pay down over time, though I'll admit it's difficult at times.

At the end of the day I am happy and I don't really feel burdened by this debt. I am trying to cut down on the amount of stuff I have and buy though as I really don't need any more "stuff."

 

[disneysteve]

I've got 2 credit cards, each with a balance, that have a combined balance of about $3800. I've also got quite a few school loans.

I'd love to be debt free, but it's going to take a long time and I'm really not disciplined enough to stick to a hardcore plan at this point in life.

Thanks for joining the thread, and for being bold enough to share this info. I wasn't sure how to reply initially so I decided to just do the math. I wonder if you've taken the time to do the same.

You have a CC balance of $3,800 which really doesn't sound like all that much money until you run the numbers. I'll assume your average interest rate is 18%. You say you don't earn enough to make a "big dent." Read on and you'll see why you are wrong about that.

If you only make the minimum payment each month and the minimum is 2% of the balance, it will take you 41 years, 6 months to repay that debt. You will pay interest charges of $10,331.04.

If you add just $5/month over the minimum, your debt will be repayed in just 6 years, 10 months and your interest will total $2,817.80, a savings of $7,513.24.

If you are lucky and your cards have already increased their minimums to 4% of the balance, paying the minimum will take you 11 years, 8 months with interest of $2,195.68.

Adding $5/month to that will retire your debt in only 31 months at a cost of only $956.82.

So paying just an extra $5/month can get you out of debt as much as 35 years earlier! Surely you can trim an extra $1.25/week off your spending no matter what you earn. Heck, adding just $1/month to your payment will cut the repayment period from 41 years to 7 years! Of course, all of those calculations assume that you never use the card again which you've admitted is probably unlikely.

I'd suggest heading to the local library and picking up 2 books by David Bach. "The Automatic Millionaire" and "Start Late, Finish Rich." They offer great, easy to follow advice for really cleaning up your finances regardless of your income or situation.

 

[disneysteve]

Credit Cards at the crack cocaine in the personal fiance world.

When I tell people I hardly ever use my credit cards and I really don't need one, I get looks like I'm crazy.

I think there are some people who just can't trust themselves to use credit cards responsibly and it is best for them to avoid them entirely.

For others, however, credit cards are a valuable financial tool that can actually earn the user money or other tangible rewards as well as providing value-added services at no additional cost.

Reward cards are the simplest example of this. If I have a cash-back card that pays me 1% of charges, I am essentially paying 1% less for all of my purchases than the guy paying cash for everything. If I rack up $25,000 in charges this year, that would mean a refund of $250. Sounds good to me. And if I'm smart and take advantage of special offers, that number can be a lot higher. For example, Discover has run a series of 5% cashback bonuses on certain categories of charges. They usually cap them at $400 or $500 in charges, but even so that means a refund of $25 just for that promotion.

Credit cards also offer buyer protection, extended warranties, travel insurance and other worthwhile services. Not a year has gone by since getting our Marriott Visa that we haven't taken at least one trip with free hotel nites earned by using that card.

So I think it is appropriate for certain people to avoid using credit cards, but for everyone else they should definitely be a part of your financial life and you should make sure you are getting the full benefits you can from using them.

 

[nowellsl]

Thanks for joining the thread, and for being bold enough to share this info. I wasn't sure how to reply initially so I decided to just do the math. I wonder if you've taken the time to do the same.

You have a CC balance of $3,800 which really doesn't sound like all that much money until you run the numbers. I'll assume your average interest rate is 18%. You say you don't earn enough to make a "big dent." Read on and you'll see why you are wrong about that.

If you only make the minimum payment each month and the minimum is 2% of the balance, it will take you 41 years, 6 months to repay that debt. You will pay interest charges of $10,331.04.

If you add just $5/month over the minimum, your debt will be repayed in just 6 years, 10 months and your interest will total $2,817.80, a savings of $7,513.24.

If you are lucky and your cards have already increased their minimums to 4% of the balance, paying the minimum will take you 11 years, 8 months with interest of $2,195.68.

Adding $5/month to that will retire your debt in only 31 months at a cost of only $956.82.

So paying just an extra $5/month can get you out of debt as much as 35 years earlier! Surely you can trim an extra $1.25/week off your spending no matter what you earn. Heck, adding just $1/month to your payment will cut the repayment period from 41 years to 7 years! Of course, all of those calculations assume that you never use the card again which you've admitted is probably unlikely.

I'd suggest heading to the local library and picking up 2 books by David Bach. "The Automatic Millionaire" and "Start Late, Finish Rich." They offer great, easy to follow advice for really cleaning up your finances regardless of your income or situation.

Excellent information and advice! Most people don't look at it for the long term, only what they have to pay each month! It boggles the mind when you start looking at how long you have to pay a balance by paying only the minimum payments. Your interest rates make a huge difference as well!! There are loan/credit calculators available on Suze Orman's web site - you can play around with payments and see what Disneysteve is talking about!

 

[disneysteve]

There are loan/credit calculators available on Suze Orman's web site - you can play around with payments and see what Disneysteve is talking about!

FYI - I used the calculator at www.bankrate.com.

 

[disneysteve]

I just realized there is an error in my calculations above. Let's see if I can explain this without confusing everyone.

The minimum payment on a credit card is not fixed. It changes every month as it is a percentage of the balance. If you are steadily paying down your balance, your minimum payment decreases a little each month.

When I suggested adding $5 to the minimum, I calculated that as a FIXED payment for the life of the balance. So if the minimum in month one is $50, I calculated paying $55 that month and every month thereafter. That is not quite the same as just adding $5 to the minimum each month.

Sorry if that was misleading. Although the fact remains that making your payment more than the minimum WILL retire the debt much quicker and save you a ton of interest.

 

[nowellsl]

disneysteve:

I knew what you were saying because that's exactly what I've been doing for the last year. And also like you said it's not going to work at all if the person keeps charging on the card!!

 

[MrsPete]

I guess it doesn't really bother me much. I figure I've got a long life ahead of me. My parents have a lot of debt so I guess I never had that "fear" of debt that so many people seem to have. In fact my dad was the one whole told me that credit cards are like a short term loan

This is very foreign to my way of thinking. Looking at the older women in my family and my own health as I approach 40, I also assume I have a long life ahead of me; however, I have a much different conclusion: If I'm going to live a long time, I'd better save for my retirement now!

I don't have a "fear" of debt. I have the common sense NOT to want to pay more for things than is necessary. Seriously, if you walked into a store and saw an item you liked, and the salesperson said, "You can either pay $10 or $25 for this item", which would you pay? If you pay over time, you're probably paying the $25. Try this: Assume that you buy a $100 item today. Figure out how much you'll pay back if you make only minimum payments at 18% (and many credit card rates are higher).

Your father was right: credit cards ARE short term loans. But would you really go to the bank and take out a loan for a sweater? or a dinner? or a tank of gas?

 

[MrsPete]

I wasn't sure how to reply initially so I decided to just do the math. I wonder if you've taken the time to do the same.

The numbers are staggering; however, it's important to note that the opposite is true as well: if you're SAVING from a young age (which you can do so much more easily if you don't have debt), then all that compound interest works IN YOUR FAVOR.