My son received a credit card offer in the mail yesterday that shocked me (which isn’t easy!)
After describing the benefits of having a credit card, and how it would teach them financial responsibility, it went on to say:
"…That’s an Introductory 0% APR - on all of your purchases for one full year. And after one year, for each $100 of purchases that are not paid in full each month, the annual percentage rate for purchases of 30.15% amounts to no more than two dollars and 76 cents each month - after you’ve had a full year to learn it’s best to pay back as much as you can each month when you get your billing statement.
30.15%! - and then they try to explain how inexpensive that is! Only $2.76/mo for each $100 unpaid. What a deal!
We received the same mailing. I pointed out that very paragraph to him!
It did start a good conversation though. I’d ordered a credit car for him a few months ago from my credit card company (USAA). Since its branched off of my account, he never sees the bill. I pay the bill in full each month so even I don’t know what my current interest rate is! So he asked me a very good question- what IS a good interest rate. It hadn’t previously occurred to me to discuss typical interest rates for credit cards because we don’t pay any.
If he pays on time and in full, as he should, the interest rate is totally irrelevant. A credit card used responsibly is a powerful tool for establishing a strong financial future.
I got my first pre-approved credit card around 30 years ago during my senior year. I have never missed a payment intentionally and always paid in full since then on all my credit cards.
A credit card used properly is a great way for purchases since it’s convenient and “safer” than carrying around cash all the time. When comparing between credit and debit cards, you get a little more protections against fraud charges put on credit. I believe in the United States you are not liable up to $50 of charges on debit and afterwards it becomes difficult to fight off if the fraudster used your PIN. With credit cards you are never liable for fraud charges of any amount. Debit cards are never recommended for most online, gas, restaurant, and big ticket items because of the way they are set up for transactions make them difficult to prevent fraud. Credit cards aren’t perfect either but the better liability protection is a plus in my book. As long as you make your payments in full before you are charged interest, you should be fine.
There are many more protections for a credit card than a debit card under federal law. Many banks offer protections on debit cards but are not obligated to do so and can change them at any time.
If you dispute a charge on a credit card, the amount is frozen while the dispute is resolved. You do not have to pay while the investigation occurs. For a debit card, the bank can offer that feature, but is not required to. If an amount is in dispute, you might be out the amount of the charge while the dispute is resolved. Not a big deal if it is $50, a problem if it is $3000.
If you pay for gas with a debit card, you’ll often notice a $75 ‘hold’ on your bank account for 3-4 days while the actual cost is processed. Not fun if you are traveling and filling up several times in those 3-4 days and suddenly there are $450 in holds on your account.
Count me in with those who avoid debit cards. I’ve had mine used fraudulently, and it’s alarming to see someone else steal money directly out of your checking account.
That said, credit cards require a lot of personal responsibility. I think it’s shameful that a card company would advertise to a young person in the way described by OP, down-playing the cost of carrying a balance.
I got a secure card from my bank my sophomore year of college to start building credit and qualified to get a “no strings attached” card this past summer.
It’s great (though I have a very small limit based on my meager part-time income), but it’s actually a nuisance. I find myself paying for gas with the credit card and then going to my banking app the next day and paying it off with my debit card.
It just feels like an extra, unnecessary step in my case. I use it so sparingly that it’s hard to remember, and once I forgot I charged $10 of gas on it and had to pay a $10 late fee. My credit is good because of my credit card experiences so I appreciate that, but if I’m not trying to build credit, I don’t think I’ll use it because I’d rather pay things in full so I don’t forget about it.
I also get a lot of those credit offers in the mail and I tear them up every time. They’re only preying!!
I’ve taught my kids to do what I do. Check their credit card balances on line as part of their morning routine and pay them via their bank account online once a week or when the balance gets over a certain amount. This takes about 1-2 minutes so it’s hardly an imposition. They learned very early that we don’t believe in using a credit card for credit. Instead it’s a safer than other options convenience device.
@maya54 amen amen amen! That’s exactly what I do every morning as well I don’t see my card as something I roll debt around with but rather something I use for convenience that I always pay off religiously on Fridays before the business week ends.
@Parent1337 more than anything its an easy way for me to manage tracking debt every week versus on a monthly basis. It’s not necessarily about charges or fees. For me paying my debt off at the end of the week helps me budget better, at least for me FWIW.
Given the minuscule interest rates right now there’s so little float it’s easier for budgeting your spending to monitor daily and pay off credit cards every week.
I got my son a Capital One credit card for college students. He puts food on there and stuff he needs. I pay the bill monthly and watch that CC. If he wants to buy something I feel he should pay for I pay that portion from his checking account since he has a part time job. Works out great. After almost a year he established credit.
I’d be careful. Just because they get an offer for a credit card doesn’t mean they will be approved. In fact my S who had a good job with a Big 4 firm had trouble getting approved for his first credit card. I remember when I graduated college and had a job AMEX pretty much handed me a credit card but they seem to have clamped down. For that reason I got my D a student Discover card with a very low limit so she could start building up her credit.
The Capital One Journey is for kids 18 and over and with no credit. He got approved for 2,000 but now has increased to 3,500. Trust me I watch that card like a hawk
My son did the same @college67 . He has his Journey card on autopay, and they have continually increased his limit. . A year after getting the Journey card, he got an offer for a card from Chase with a very large limit and I told him to take it. Now at 20, his credit score is almost as good as mine.
I don’t see my card as something I roll debt around with but rather something I use for convenience that I always pay off religiously on Fridays before the business week ends.