There will be some venting here, so if I ramble some bare with me (or skip down to the tl;dr that you can likely assume from the title as well). So my parents went to a financial seminar a while ago and were so impressed by it that they've paid for me to attend it now and are attending it again (repeating is free). But the seminar talks mostly about getting out of debt and avoiding debt. This is all well and good, but right now I have a small debt with my parents over dropped classes and have no credit lines to create debt. In fact my few attempts to create a credit line (including a secured credit card) have all been declined due to lack of a credit history. When I mentioned that in a break off discussion during the seminar, they were shocked that I had even applied for credit. According to them being in a situation where debt is an option is folly. Everything should be saved for and purchased in cash. I'm find that to be a great end goal, but it isn't a good starting place in today's society. Case in point in housing. I would be living with my parents a long time to save enough to buy a house in cash, so that isn't really an option. But after that you need to look at mortgage or renting. Mortgage is directly debt so that is out (if I can even secure one) and landlords want to see credit history so they can be confident you can pay each month. So under their current philosophy my only option is to convince potential landlords to let me live there without proof that I can make payments. So we wind up with an interesting conundrum. Credit is so ingrained in our society that living without it is difficult, especially when you are first starting to live independently. Credit history is used to create a lot contracts. And low budget financing is a lot easier when you can charge somewhere that you aren't worried if a transfer has occurred yet or if you might have a subscription payment coming up that will overdraft the account. But at the same time creditors earn money when you use the service incorrectly, so they stack the deck against you. Every adult I talk to is paying off some debt or another, and no one intends to go there. They go there assuming that they know better and they won't mess it up like everyone else. And when they do make larger debts it is because they are going to "pay it off quickly before it is an issue". So is it enough to swear that you won't build up a long term debt? Is the credit card so dangerous that ever owning one should be avoided? tl;dr: At what lengths is it reasonable to avoid credit and debt? Is it reasonable to live life without any credit lines? What are the best practices when using lines of credit? Disclaimer: Above questions are intended to be an icebreaker to the topic. They are not guidelines. As such sharing of thoughts within the topic but outside of the posed questions are accepted and encouraged. My god this disclaimer is sounding too much like legalese. I need to crack a joke or something. Pudding.
Basically contracting a credit to house yourself or get a car so that all you have to worry about is finding/keeping a job is okay. If it' s to buy a TV or the latest iPod, not so much. You have to use it for the vital stuff, those that get you cornered. Theoretically bankers look at your situation and only accept if you can afford it anyway, but in practice sometimes, from their point of view, the less you can afford it the better since their end game is to exploit you. That' s why you gotta be extra careful and only resort to it if you don' t have a plan B, especially in the US where that kind of bank abuse runs amock. Regarding what you said about them living off us using credit cards the wrong way, I heard my country is planning to pass a piece of legislation regarding those practices so that people cannot be charged more than 20 bucks a month for this, otherwise it starts looking like exploitation. I certainly struggled with this myself for some time, but now that I can check my account online to keep tracks on my situation I' m doing much better.
Problem is, like insurance companies, they can get you a deal that you can't afford in the first place. That's why the US economy is in a mess right now, because insurance companies got people luxurious houses they could not afford.
Or houses you can afford but they somehow forgot to mention it was built on sinking sand. I heard countless stories like this. It seems in the US banks cannot be held accountable for anything lately. Too big to fall, they have carte blanche and they know it. If you can' t do the math yourself (hell, even if you can) try asking around for second opinions, taking a banker on his word isn' t a good idea.
I work at a debt collector law firm. *yes, throw pointy hateful objects at me, I AM NOT part of the call debtors part, I just help the lawyers locate the debtors* Mainly because if you DON'T pay the debt, it ruins your credit also. The biggest suggestion I have is to continually pay your loans, and if you can, co-sign with your parents on one of their credit cards. I'm guessing they pay their debts on time monthly. That will VASTLY improve your credit score without worries. And having seen most of the creditor side of things, most companies, I don't know about banks, we don't handle those transactions 99.99% of the time, and when we do, I rarely see it myself, is that they will do a credit check on you. If you are reasonable with a credit card with a good score and pay above interest. By law, the creditors should tell you if asked how much interest is accumulating per month. There are agencies now severely cracking down on the creditors, and launching a complaint against one of the credit companies gets them in a shitload of trouble. Especially when there's an agency now made in the U.S. that are now the IRS of credit and are making companies change every policy ever made about credit. If you are reasonable about how much you spend and are paying back, you should be okay. It's when people think that this is a money tree and keep on plucking bits of money off and not putting money back is when it reaches a problem. I heard some good advice: Always be at least a year ahead in money due to the fact if you lose your job you can still pay your loans at least a while longer. You also get leeway if you are straightout honest from the start that you don't have a job right now to the creditors. My company has a policy of every six months checking if there's an illness or no jobs or no funds to check again. If you want a credit card, that's a good idea, but always keep an eye out on the balance and the payments balancing how much money you have. A lot of people don't realize, A LOT of people don't realize is that the reason why these policies are up in the first place is because a lot of people refuse to pay. Whether it be credit cards, rent, mortgage, etc... They live there/use their cars/rack up interest, without giving the people they owe money a dime. A lot of our claims come from actually car companies who have this problem constantly. Some break down, that's not their fault. A lot of people just are angry that they have to pay and are rude and insulting. The reason why people are so through about credit now when it comes to anything is because now it's a massive hassle to get money from a lot of people. Even when the economy's good it becomes a hassle and they don't want to deal with it or pay someone else to. I've heard people get angry about 100 dollar balances, believe it or not.
Man I am dreading keeping up with my own debts. I am notoriously bad at keeping a schedule with anything. But that segues nicely into my opinion on the subject: It's a great option for people who can handle it, but is there really a choice for those who can't? I'm lucky to have folks who will co-sign and can keep up with their debts, like Sara suggested, but I can't imagine living in a household with less responsible parents. You'd be stuck there 'til you're thirty, yeesh.
A good way to go is to save your cash until you have enough to actually buy the item in question. Then buy with credit and pay off your card when the statement comes out. Then there's no interest and you have electronic proof that you bought the item in case something happens to it. If it's a house, save enough for the down payment, then pay the rest on a mortgage you can handle. Seriously, the highest you can go without leaving yourself strapped for cash when someone gets sick. The longer you take to pay that off, the more you pay out in the end. Or, you can do as the Canadians do and introduce debit, a marvelous was of paying which combines the card form of credit with the not-debt of cash.
Also, what you should do is when you have a job: Constantly put money away at the bank where you're going to get a loan from. A Credit Union bank is best, but keep an eye on the interest for them. If you constantly put money away there, they'll know that you have a steady income and you can pay back their debt depending on what it is. The more money you can put away and not touch, the more convinced they'll be you can get a loan from them.
Credit is a damn gift to human beings. No, really, do you know how hard it'd be to have a decent phone or good furniture without good credit? Hard. Real real hard. Try looking up the cost to an entertainment center, a fridge, and a stove sometime. You build up your credit slowly with stuff like eBay's "bill me later" and pay it off month at a time in a way that gets it squared away before interest kicks in. That way, you pay it off small chunks that don't make living a struggle and you don't have to fight the real enemies: Rent-a-center. Plan these purchases, figure out how much you make in the span of a month and how much you spend on your basic living, then form credit plans and credit purchases. Simple.
