APR of 26.74% Variable !!!

Easto · Post by **Easto** » Mon Jun 19, 2023 10:28 am

Just my little rant on CC interest rates.

We have a 19 y/o grandson who is just starting his journey out into the "real" world. He's enrolled at a community college and beginning his first semester this fall, has a part time job and wants to start "building his credit".

As a present for his HS graduation we took him out for dinner and I used the opportunity to explain how credit cards work. I should add here that he comes from an family that lives paycheck to paycheck so there is really no education or encouragement to learn about money and investments. When I gave him an example of only paying off $25 of a $100 and that next month you'll owe $85 not $75 he got really quiet. I'm going to sit down with him later this week and I'm going to give him a crash course on savings accounts, credit cards etc.

Now here's the kicker. He said he does have a savings account at Chase. So this morning I looked at their site to see if there were any "First Time" or "Student" credit cards they offered with lower credit lines and possibly a bit more "new user friendly". Holy Heck, the APR on those cards was 26.74%. The reason this scares me is that I'm sure sooner or later this kid is going to either have someone in his family say they need to use it for an emergency and promise to pay him back (and that will never happen). At 26.74% there's the chance that this could get out of control without even trying.

Post by **Philip** » Mon Jun 19, 2023 11:00 am

First-timer interest rates are crazy, but these days even with great credit, BofA cash rewards VISA is at 18+% now I think.

Trick is to teach them not to carry a balance over a month, and that takes time and discipline to learn. The good part is that for first-timers their cc limit will be low, I know my 18yo daughter's first cc has a limit of 1k. I sleep much easier than when I added my older daughter to my own credit card to help build up her credit when she was 18 (it had like a 20k limit and I had to watch her like a hawk, heh).

It takes a while to grasp the ideas that statements are issued at arbitrary dates in the middle of the month, that statement balance is different than total current balance, to keep track of those statement dates and/or to budget, but the earlier they learn some money management skills, the easier it will be later on for them.

The added benefit of using a credit card is that if identity theft or fraud happens (which seems common these days), you are not immediately swindled out of your own money, you have 20+ days to report and remedy the issue. With debit cards you only have ~3 days before your own money is gone, and the bank has to eventually recover it in order for you to get it back.

Easto · Post by **Easto** » Mon Jun 19, 2023 11:53 am

Totally understood. I'm trying to come up with a comprehensible bullet point speech and not drift too far from each point. I just need to plant the seeds in his head and give him some time to comprehend what we talked about.

Post by **YeOldeStonecat** » Tue Jun 20, 2023 12:15 pm

A quick glance as his monthly income and monthly expenses...figure out how much to put on his CC each month..where he can pay it off every month.

For the overall monthly budget stuff, I find "the envelope system" is a good visual way for young minds to wrap around a monthly budget.
XXX amount of income each month.....fills the top envelope.
Under that...are envelopes for each monthly expense....you create them and call them based on what you should...your rent/mortgage, your groceries, your car payment, car insurance, cable TV, electric, oil, eating out, personal fun, clothing, etc. and you allot money into each envelope ..that comes from the top monthly fill.

It really helps visualize a monthly budget.
A good app that uses this method....
https://goodbudget.com/login

Easto · Post by **Easto** » Tue Jun 20, 2023 11:00 pm

YeOldeStonecat wrote:
It really helps visualize a monthly budget.

That really worked for me when I was first starting. Every January I would write down on a piece of paper where I wanted to be in 1 year, 3 years and 5 years.

Humboldt · Post by **Humboldt** » Wed Jun 21, 2023 9:00 pm

Good to hear you're looking out for him.

I'd stress the obvious...pay off the balance due each and every time. Rates will improve after time.

As in, avoid putting charges on you can't pay once due unless it's an emergency.

Humboldt · Post by **Humboldt** » Wed Jun 21, 2023 9:13 pm

YeOldeStonecat wrote:A quick glance as his monthly income and monthly expenses...figure out how much to put on his CC each month..where he can pay it off every month.

For the overall monthly budget stuff, I find "the envelope system" is a good visual way for young minds to wrap around a monthly budget.
XXX amount of income each month.....fills the top envelope.
Under that...are envelopes for each monthly expense....you create them and call them based on what you should...your rent/mortgage, your groceries, your car payment, car insurance, cable TV, electric, oil, eating out, personal fun, clothing, etc. and you allot money into each envelope ..that comes from the top monthly fill.

It really helps visualize a monthly budget.
A good app that uses this method....
https://goodbudget.com/login

Interesting program, looks helpful.
Would never want to give my financial data to some random company though.

I just crunch everything in my head.

I work to make money I spend on a regular basis with typically minor fluctuations.

I track my checking and savings nightly along with my investment accounts and credit cards.

I'm very thrifty with my money right up until I splurge on something (that sounds really bad), but always glad for the funds being there when needed.

Easto · Post by **Easto** » Thu Jun 22, 2023 9:53 am

Humboldt wrote:I'm very thrifty with my money right up until I splurge on something (that sounds really bad), but always glad for the funds being there when needed.

^^Sounds like me^^

He's only 19 and just starting out. Any gains he makes are going to be relatively small. But I gave him the example of filling a swimming pool with just a hose. It's going to take a long time to fill that thing and you're going to be tempted once it's about half way full, but you need to be patient and wait until it's filled all the way. Then, if you do end up losing half of the water you still have half left. Maybe not the best way to put it but I think I got through to him.

Post by **Philip** » Thu Jun 22, 2023 1:09 pm

I am really chaotic with my budgeting.. Main principle being, make more than spending, try to be frugal (wife/kids not so much, heh).
I still budget for larger expenses, i.e. taxes/insurances/travel/kids college tuitions, retirement contributions when possible.

Post by **YeOldeStonecat** » Thu Jun 22, 2023 1:26 pm

I'm not worried about $ info being with another company....that GoodBudget app has no info about who we are, no address, no bank account info (it does not plug into your bank accts), etc.
We only have it monitor our "checking account"....which we keep a relatively low sea level on (~3 months living expenses)

Humboldt · Post by **Humboldt** » Fri Jun 23, 2023 12:50 am

YeOldeStonecat wrote:We only have it monitor our "checking account"....which we keep a relatively low sea level on (~3 months living expenses)

Why checking?

Post by **YeOldeStonecat** » Sat Jun 24, 2023 7:36 am

Humboldt wrote:Why checking?

That's our operating account....
GoodBudget helps you plan and visualize your budget. Our checking account is our operating account. All of our monthly expenses come out of there, not our savings, not our emergency break glass, not our high interest savings, not our IRAs.

Easto · Post by **Easto** » Sat Jun 24, 2023 12:17 pm

Since I've been trying to help this grandson as he starts out on his "savings journey" I'm learning a whole lot about all the different terms that the major banks charge for just a Savings account. Both Wells Fargo and Chase charge you $5 a month if you don't carry a balance over $300. For you and I that may not be much of a problem, but for a kid just starting out... he was quite surprised when they took the first $5 out of his account. WF does seem to waive the $5 fee if you're under 24 years old. Regardless, I've been banking at a Credit Union for most of my life. Outside of the $5 fee to open an account I've never been charged for anything (we get free checks, notary, certified checks etc). I've had a CC with BofA for so long that there have 2 times I missed a payment and they tried to hit me with a $25 fee and I just called them up and asked them to please remove that fee from my account, and they did.

As far as keeping track of where my money is I've never really found the need to do anything more than create a spreadsheet and keep it on my desktop. Nowadays with everyone offering you all the info you want online there's really no need to get too deep into the weeds. For example, I have a friend and we were talking and he said that he keeps every receipt and statement for his CC purchases back at least 10 years. My jaw just dropped. You can get copies of your statements going back at least 10 years with the click of a button. If no one has contested any purchase more than 30-60 days later there is no reason to keep a receipt.

Post by **Philip** » Sat Jun 24, 2023 5:09 pm

While I agree with most that was already said, there are some legitimate reasons to keep receipts, for warranty purposes of appliances, for tax expense/audit purposes, etc.

MadDoctor · Post by **MadDoctor** » Sun Jul 02, 2023 1:38 pm

YeOldeStonecat wrote:For the overall monthly budget stuff, I find "the envelope system" is a good visual way for young minds to wrap around a monthly budget.
XXX amount of income each month.....fills the top envelope.
Under that...are envelopes for each monthly expense....you create them and call them based on what you should...your rent/mortgage, your groceries, your car payment, car insurance, cable TV, electric, oil, eating out, personal fun, clothing, etc. and you allot money into each envelope ..that comes from the top monthly fill.

It really helps visualize a monthly budget.

My son uses the envelope system and loves it.