Brother needs credit. What advice can I give him?

[moneymatters]

Ouch. That really sucks. I'm pretty sure that's news he does not want to hear. Oh well, hope he learns a lesson in all of this.

Thanks a lot, disneysteve. You and the other posters have been a great help!

Ciao for now.

[GREENBACK]

You're wrong . Here's why. The interest rate on a credit card doesn't matter at all because you should NEVER use it if you can't afford to pay the bill in full each month. We charge about $40,000/year to our credit cards and I have no idea what the rates are on any of them. It is just a non-issue because we pay the bill in full. The rate could be 200% and it wouldn't matter a bit.

Your brother needs to be prepared to use a CC properly. That means charging only purchases that he would be making anyway regardless of the payment method and paying the bill in full every month and on time. If he isn't ready to do that, he isn't ready to own a credit card.

DS

I do not totally agree with this. The interest rate should be a factor. If you are starting out in life you may need to charge for a few unexpected expenses. A cc gives you flexibility to get those things as needed. You may have to carry a balance but hopefully you've planned out how to tackle this debt(this is where educating is important). Buisnesses operate this way and people can or should too. The key is to be disciplined in how you spend as stated. I know it's easy for young people to mishandle credit but learning to properly handle it at a young age is important and basic unsecured debt like a cc can be a good learning tool if done properly.

[GREENBACK]

I suppose another question might be... how responsible has he been in other phases of his life. Trouble with the law? Trouble in school? Blames things on others? I'm not saying any of these apply to your situation but often people who are irresponsible in these aspects of life are financially irresponsible as well.

[Runaway Finances]

Steve is right....always pay off your credit card. A credit card is NOT a good place to borrow money. If you have good credit and you need to borrow money, then go to a bank. It will be cheaper. If you can't borrow at a bank because you have bad credit then you most likely don't need to be borrowing any more. Most people have to go into debt because they did not plan ahead and build up an emergency fund to handle those situations. Building up an emergency fund is hard because most people want things NOW that they can't afford, so they go into debt to buy them now. They then spend all their paycheck living and paying for things they bought in the past.

[GREENBACK]

Building up an emergency fund is hard because most people want things NOW that they can't afford, so they go into debt to buy them now. They then spend all their paycheck living and paying for things they bought in the past.

I think it's possible to use a CC to get what you "need" without being a paycheck to paycheck person. Responsible people who are starting out in life often do not have an emergency fund in place(did you?). I certainly didn't have much money to my name. I used cc's to get on my feet. I built up a balance that involved no frivolous spending and like a responsible adult I paid my loan back because That's what responsible people do. I learned to use this type of credit to my advantage many years ago and continue to do so today and I've never whined about cc companies taking advantage of me.

[Runaway Finances]

(As I re-read, this it sounds boastful, but it really is a testimony to how well my father taught me and my intention is to share that testimony and not really my own) My father taught me from an early age to not buy something unless you have the cash to pay for it. I started mowing yards when I was 10 years old. I have had money in the bank from that age to buy the things I wanted. I have been fortunate to have great jobs my whole life (from mowing yards, flipping burgers, working in a hardware store, to being a heavy equipment mechanic prior to graduating from college). I have always had money in the bank. I have always bought my own cars since I started driving and I paid cash for all but my first one (I bought the car from my dad) and a couple of other ones early in my marriage. You NEVER need to use credit cards to get something you "NEED". Most people don't have enough money for the things they "need" because they spend too much on things that they "want" and there is not enough for the things they truly need. There have been numerous times where my wife and I didn't have money to buy things we wanted, but we have always had savings. That's a choice. My wife was raised the same way. She also had savings coming into our marriage.

I once had a guy in the ministry come into my office for advice. The guy was married with one kid, a house payment and a car payment, and he was making $24,000 per year (this was 2 years ago). He was already saving money and had another $500/mo to save!!! I told my wife that was the best day of my life, because I learned I could live on $24,000 per year if I had to!! It does not take much to live. But, it takes A LOT to live like we want to live. That is the problem with many (most?) Americans. We want more things than we can afford.

[disneysteve]

I think it's possible to use a CC to get what you "need" without being a paycheck to paycheck person.

I would agree with that statement. My wife and I have had a balance on our CC just once and it was for one month only. We charged our honeymoon and paid half one month and half the next month. We actually had enough in savings to cover the full cost the first month but it would have almost totally depleted our account and we didn't feel comfortable doing that. We were willing to pay a few dollars interest to delay the payment and keep our savings in place.

Responsible people who are starting out in life often do not have an emergency fund in place(did you?).

Did I have a Suze Orman 8-month EF in place from day one? No, but I ALWAYS had savings. I ALWAYS had a reserve for emergencies. I never lived paycheck to paycheck, even when I was just starting out. I saved part of my pay and I had money saved up over the years from birthdays and holidays and such.

[GREENBACK]

I agree whole heartedly that things that can be purchased with cash should be but that's not always the case. I look at my finances like I'm running a buisness. If something truly needs to be purchased and a cash purchase isn't practical then I have no problem going the credit route(rarely the case). When I do this I always plan ahead on how the purchase will be paid. Maybe that's just my way of thinking but so be it. Buying things with credit isn't a terrible thing if you're buying what you need and absolutely plan to pay it off as soon as you can.

[disneysteve]

Buying things with credit isn't a terrible thing if you're buying what you need and absolutely plan to pay it off as soon as you can.

I think that is a reasonable statement. I also think the reality is that far too many people have forgotten how to distinguish wants from needs. There are exceedingly few things that truly qualify as needs worthy of going into debt to obtain: safe housing, reliable transportation, clothing appropriate for your employment, nutritious food, medical care, etc. I'll bet that most things people charge to their CCs aren't really needs.

ETA: I also think it depends on the credit terms. There is a big difference between buying something with 0% financing and charging to a 12 or 15% CC.

[Runaway Finances]

Steve, that was exactly what I was trying to say. People say to me all the time "I had to charge it because it was for a doctor bill", or something that was truly a need. But, had they not spent so much on things they wanted, they would have had the money for those emergencies. These seems an unrealistic statement to many people because they simply never were in the mode of saving money to begin with.

[disneysteve]

Steve, that was exactly what I was trying to say. People say to me all the time "I had to charge it because it was for a doctor bill", or something that was truly a need. But, had they not spent so much on things they wanted, they would have had the money for those emergencies.

Exactly. I meant to say that. First off, most "emergencies" really aren't. Cars break. People get sick. Houses need repairs. You may not know when they will happen but you can be quite sure that they will, in fact, happen. When they do happen, you may realize that the concert tickets you bought a couple of weeks ago or the nice restaurant meal you had the other day or the new DVDs you just ordered on Amazon or that handbag you couldn't resist at the mall last weekend weren't really so important after all because now you're stuck putting that $100 doctor bill on the credit card and paying 17% interest.

[GREENBACK]

Exactly. I meant to say that. First off, most "emergencies" really aren't. Cars break. People get sick. Houses need repairs. You may not know when they will happen but you can be quite sure that they will, in fact, happen. When they do happen, you may realize that the concert tickets you bought a couple of weeks ago or the nice restaurant meal you had the other day or the new DVDs you just ordered on Amazon or that handbag you couldn't resist at the mall last weekend weren't really so important after all because now you're stuck putting that $100 doctor bill on the credit card and paying 17% interest.

Very true. People tend to not look out for rainy days. As one who has seen rainy days I know to plan for them. I tend to view credit as a means to an end in some cases but this isn't true for most people unfortunately. The only time I've made cc purchases for wants is when I knew I could pay them off immediately which is an idea that escapes way to many people.

[reptile411]

Are you still paying a $70 annual fee? If so, you should get rid of that card and get one that has no fee. Unless they are giving you something worth $70 in exchange for that fee, it makes no sense to keep paying it.

Yes unfortunately I am still paying the annual fee and no they really don't give me anything that's worth it. I do get 24-7 access to my credit reports and everything which I enjoy but they charge an additional 9.95 per month for that.

[reptile411]

Thanks again for all of your replies. Now, I feel a bit more confident about advising my bro what to do about applying for credit.

He really does not want a credit card and likes to pay cash for all of his purchases. I had the same mindset before I got my first cc but managed to rack up almost $5000 in debt three years later. Hmm.. Go figure. So I've been really stressing to him if he does get one, to use the card(s) responsibily and pay his bills on time as he does with other bills.

Also, I was wondering. His car, which is leased until 1/2010, is in my father's name. He has been making payments on time since 7/2006. Would this loan show on his credit report?

It seems to me a CC is the first step to good credit. Who will give you a car or home loan or any loan right now with no credit? Sure there a few used car dealers that claim to but CC companies will just as they did for me. Trust me my wife had the same attitude as your brother. She had no credit. Never did and didn't want any. suffice it to say I nearly had to give them our first born, my left leg and the dog to get her name on the house. Now she is building credit and could never agree more that credit is one of the most important things in your financial life. It can make or break you but everyone has to start somewhere. If he is disciplined enough that starting point would be a low limit CC. Unless he wants to buy a hunk of junk car in Rosevill and pay twice what its worth and have it break down next week that's up to him but you cant go wrong with a CC so long as you pay it off every month.

[disneysteve]

Yes unfortunately I am still paying the annual fee and no they really don't give me anything that's worth it. I do get 24-7 access to my credit reports and everything which I enjoy but they charge an additional 9.95 per month for that.

Get yourself a new card and then cancel this one. There is no reason to pay a $70 annual fee if you get nothing in return. I am not opposed to paying an annual fee IF AND ONLY IF you get something of value in return. There is also no reason to pay $10/month to access your credit reports unless you have been an identity theft victim. For most people, the free report you can get 3 times each year should be plenty.