Stupid basic question about credit cards

[LaboonTheWhale]

Hey guys

 

So trying to be an adult after graduating college I got my first credit card. I'm trying to learn everything about it and its benefits and whatnot since thats not something I really learned in my schooling. 

 

I am looking to upgrade my monitor and get the 34" Alienware Ultrawide 3440x1440 monitor. That monitor is $999.99 US. Lets say in my next billing cycle I don't want to pay off that $999.99 balance right away. Hypothetically I want to break it down paying it off over 5 months. Lets say my first month I pay $200 (over 5 mo period). In my next billing cycle will I have an outstanding balance of $800 + my interest plus whatever other balance I may have? That is technically over the minimum payment so I would be fine for the billing cycle and more. 

 

Then the following months if I do the same $200 payments, I would have $600 + interest, $400 + interest, and so on? 

 

Thanks and I'm sorry if this seems like a DUH question. 

[Teddy07]

Wait 5 month and then pay for the monitor all at once without any interest! That is the adult way but unfortunately, many people just want to consume as fast as they can.

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

[LaboonTheWhale]

1 minute ago, Teddy07 said:

Wait 5 month and then pay for the monitor all at once without any interest! That is the adult way but unfortunately, many people just want to consume as fast as they can.

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

I could buy outright but I just wanted to make sure thats how it would work. With having good credit being something so important here especially later on if I need to borrow money for a House or something I wanted to make sure to get started on working on that. 

[porina]

That sounds about right, assuming things don't work differently where you are. Note the interest starts from when you make the purchase if you don't pay off the balance in full, and is usually calculated daily although only shown as a single monthly value on the statement. The earlier you part pay off any amount, the sooner you lower the interest. Also check what is your interest rate. Especially for "starter" cards, they might not offer the best rates so it is potentially an expensive way of borrowing and other options may work out better.

 

Also be aware they like people to have a high balance and never pay it off, as they get a nice interest income from that. I almost always pay off balances monthly so there is no interest to pay, but on the rare occasion I only make a part payment, they quickly offer to increase my credit limit. It's like they want people to spend what they don't have and get trapped in paying them the high rates every month. Something like a bank loan might work out better as at least it forces you to have a known start and end.

[Yoinkerman]

yeah that's the general idea.  the nitty gritty is slightly different because of how daily interest works but that's still generally how it works

[LaboonTheWhale]

12 minutes ago, porina said:

That sounds about right, assuming things don't work differently where you are. Note the interest starts from when you make the purchase if you don't pay off the balance in full, and is usually calculated daily although only shown as a single monthly value on the statement. The earlier you part pay off any amount, the sooner you lower the interest. Also check what is your interest rate. Especially for "starter" cards, they might not offer the best rates so it is potentially an expensive way of borrowing and other options may work out better.

 

Also be aware they like people to have a high balance and never pay it off, as they get a nice interest income from that. I almost always pay off balances monthly so there is no interest to pay, but on the rare occasion I only make a part payment, they quickly offer to increase my credit limit. It's like they want people to spend what they don't have and get trapped in paying them the high rates every month. Something like a bank loan might work out better as at least it forces you to have a known start and end.

I just received this card and it seems i have 0% APR for 12 months. would this mean I wouldnt have interest for these upcoming 12 months? but then it has 23% APR after that so I obviously will need to be careful and not get into a downward spiral. 

 

I just want to make sure I can set myself up correctly for the upcoming years. already had a friend who had to cut up his CC because he would keep using it and pay only partial having him in quite a bit of debt. (didn't have the best self control/discipline) 

[porina]

5 minutes ago, LaboonTheWhale said:

I just received this card and it seems i have 0% APR for 12 months. would this mean I wouldnt have interest for these upcoming 12 months? but then it has 23% APR after that so I obviously will need to be careful and not get into a downward spiral. 

Check exactly what they offer, if it is indeed 0% for everything for those 12 months they probably want to get people used to having a balance, so when it ends they end up paying interest while they sort it out.

 

There was a time when 0% on transfers were popular, but new purchases were charged at regular rate, and when you pay off, it goes to the 0% rate balance first.

 

5 minutes ago, LaboonTheWhale said:

I just want to make sure I can set myself up correctly for the upcoming years. already had a friend who had to cut up his CC because he would keep using it and pay only partial having him in quite a bit of debt. (didn't have the bets self control) 

If you aim to be able to pay off the balance in full most months you'll be fine. There may be the occasional emergency when you need to spend more than you can afford and that's ok as long as it is the exception than the rule.

[Yoinkerman]

It's a little more complicated than that.  But yes the idea is if you have a 0 total balance after 12 months you wouldn't have paid interest on whatever was paid off.

 

With balances carried over, payments are applied to the newest (grace period purchases) first before applying to the balance that was carried over.  So if you carry balances for 12 months, you could definitely be paying interest (12 months worth) on what is owed.

 

Because how they do 12 month 0% apr is interest still accumulates, but doesn't apply to your account until the 12 months is over.  So if there's any sort of balance owed after 12 months, any accumulated interest is applied.

[Monkey Dust]

1 hour ago, LaboonTheWhale said:

I could buy outright but I just wanted to make sure thats how it would work. With having good credit being something so important here especially later on if I need to borrow money for a House or something I wanted to make sure to get started on working on that. 

A blank credit history is very nearly as bad as a bad credit history, so yes it's good to take out moderate amounts of credit. If you can set the credit limit on your card (not sure what the regulations are where you live, but in the UK you can normally adjust this online) to a maximum of a months salary it limits the damage you can do in an impulsive moment. Here speaks the voice of experience on that last point...

 

A caveat to the credit limit thing is if you're buying a high value item or service you get more protection if the seller ceases trading before delivery, or before the warranty expires. For example if you were going to build yourself a new rig that cost more than a month's salary it would be worth raising the limit for that as you'd get 'insurance' against the supplier going bust, or refusing to honour a warranty. In the UK you are protected by your credit card provider for any item or service purchased on it between £100 and £30000, you'd have to look up the regulations where you live though.  

[JokerProduction]

I would double check that the 0% is not just for balance transfers and applies to purchases.  

 

As long as you make your minimum payment you will be fine.  Minimum payment is almost always 10-25$ or 2-3% of the outstanding balance, whichever is greater.

 

There are tons of calculators online that will tell you exactly how it works out.  I put your scenario in one and this is what It came up with.

 

1000$ @ 23% APR 

If you only make the minimum payments of 15$ it will take 9 years and 10 months and you would of paid 2189.37$

 

If you pay 200$ each month you will pay it off in 6months and pay a total of 1061.66$

 

I use a credit card to pay for everything but I also pay it off right away and have yet to give them any interest.  Once you get better credit you will find you will qualify for rewards cards which will get you around 1-2% off in some way.  Premium cards can go up to 4% but require a yearly payment (100-250$ a year) or most banks will offer you it if you have certain type of savings account with usually at least a 5k balance.  Not all cards are straight cash back though some are travel points, some you can redeem gifts.  The reward cards are almost always a high interest rate though.  Some of the premium cards don't offer any incentives other than a lower APR rate.  If your like me and just use it as a form of payment the interest rate does not matter and a card with a good rewards is the most beneficial.  If you are not planning on paying it off within the grace period a lower interest rate card will end up more beneficial. 

 

[Donut417]

7 hours ago, LaboonTheWhale said:

Hey guys

 

So trying to be an adult after graduating college I got my first credit card. I'm trying to learn everything about it and its benefits and whatnot since thats not something I really learned in my schooling. 

 

I am looking to upgrade my monitor and get the 34" Alienware Ultrawide 3440x1440 monitor. That monitor is $999.99 US. Lets say in my next billing cycle I don't want to pay off that $999.99 balance right away. Hypothetically I want to break it down paying it off over 5 months. Lets say my first month I pay $200 (over 5 mo period). In my next billing cycle will I have an outstanding balance of $800 + my interest plus whatever other balance I may have? That is technically over the minimum payment so I would be fine for the billing cycle and more. 

 

Then the following months if I do the same $200 payments, I would have $600 + interest, $400 + interest, and so on? 

 

Thanks and I'm sorry if this seems like a DUH question. 

I have one credit card and a nearly perfect credit store. Im 29. The key to making a purchase like this is having the cash to pay for it. Dont buy something you cant pay for immediately. I would say that paying it off over 5 months would be fine. The key thing they want to see is you can make payments. This will help your credit score out. Assuming you live in the US. Not sure how this works in the rest of the world. 

 

7 hours ago, Teddy07 said:

Wait 5 month and then pay for the monitor all at once without any interest! That is the adult way but unfortunately, many people just want to consume as fast as they can.

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

In the US you cant rent cars and such unless you have a credit card. Hell I think even to get a hotel room you are required a credit card. Plus, if you dont have a credit card its hard to build credit. If you have no credit, it makes it very difficult to buy cars and houses and such. While I do agree, that if I dont have cash I wont buy, That even applies to purchases made on credit card. But, you still need to have credit card. 

[LaboonTheWhale]

Thanks so much everyone for explaining it to a Dumbo like me. I really do appreciate it and was a little too embarrassed to ask someone in person since it seems like something "I should already know" 

[PhantomJaguarr]

22 minutes ago, LaboonTheWhale said:

Thanks so much everyone for explaining it to a Dumbo like me. I really do appreciate it and was a little too embarrassed to ask someone in person since it seems like something "I should already know" 

I felt the same way when I was applying for my college cash back credit card. I humbly asked the banker to explain the whole concept of APR. I'm 24 btw.

[Princess Luna]

Getting a credit card and becoming an adult are by no means related

 

I kinda agree above, just save the money and buy in-cash you even usually get some discounts doing so, I have an international credit card though I only use it as fund for my PayPal which I use to commission some draws some times, never bought durable goods with it.

[DOSjockey]

20 hours ago, LaboonTheWhale said:

Hey guys

 

So trying to be an adult after graduating college I got my first credit card. I'm trying to learn everything about it and its benefits and whatnot since thats not something I really learned in my schooling. 

 

I am looking to upgrade my monitor and get the 34" Alienware Ultrawide 3440x1440 monitor. That monitor is $999.99 US. Lets say in my next billing cycle I don't want to pay off that $999.99 balance right away. Hypothetically I want to break it down paying it off over 5 months. Lets say my first month I pay $200 (over 5 mo period). In my next billing cycle will I have an outstanding balance of $800 + my interest plus whatever other balance I may have? That is technically over the minimum payment so I would be fine for the billing cycle and more. 

 

Then the following months if I do the same $200 payments, I would have $600 + interest, $400 + interest, and so on? 

 

Thanks and I'm sorry if this seems like a DUH question. 

Not a "duh" question at all.  It's a very good question that's not asked often enough.

[TetraSky]

20 hours ago, Teddy07 said:

Wait 5 month and then pay for the monitor all at once without any interest! That is the adult way but unfortunately, many people just want to consume as fast as they can.

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

Yup, fully agree with you on that.
If you don't have the cash to buy something right now, save up and buy it later. Chances are it will be cheaper as well.
You never know when bad times may befall you, you may be fine this month, but next month you may lose your job because it burned to the ground or get into an accident that prevents you from working and thus be unable to pay your card anymore.

 

My approach to credits cards, use it regularly just to raise your credit score, never make purchase that you can't pay off immediately.

https://www.experian.com/blogs/ask-experian/better-pay-off-credit-card-full-every-month-or-maintain-balance/

[Canada EH]

You are paying 20-25% apr, so 2% a month.

$20/month on $1k

 

 

23 hours ago, LaboonTheWhale said:

Hey guys

 

So trying to be an adult after graduating college I got my first credit card. I'm trying to learn everything about it and its benefits and whatnot since thats not something I really learned in my schooling. 

 

I am looking to upgrade my monitor and get the 34" Alienware Ultrawide 3440x1440 monitor. That monitor is $999.99 US. Lets say in my next billing cycle I don't want to pay off that $999.99 balance right away. Hypothetically I want to break it down paying it off over 5 months. Lets say my first month I pay $200 (over 5 mo period). In my next billing cycle will I have an outstanding balance of $800 + my interest plus whatever other balance I may have? That is technically over the minimum payment so I would be fine for the billing cycle and more. 

 

Then the following months if I do the same $200 payments, I would have $600 + interest, $400 + interest, and so on? 

 

Thanks and I'm sorry if this seems like a DUH question. 

 

[dalekphalm]

Another tip on credit cards and building your Credit Score (Note, this may not apply to every country/region):

 

Don't pay off the bill before it arrives.

 

Say you make a purchase for $200. You then immediately make a $200 payment to your credit card. This isn't bad. But it's not the best way to handle it either.

 

Why? Because most credit card companies report your account to the credit bureaus (Equifax, etc) when your statement is generated.

 

Why does that matter? Because in the scenario above, you will have a zero dollar balance on your statement, because you already paid it off.

 

According to stats you can find online, your credit score most benefits when you have around a 10% balance (of total available credit) due on the statement.

 

Pretty much every credit card will give you a "grace period", with a due date, on the credit card statement. This is an interest free period that gives you time to pay your bill, after the statement is generated. Usually it's 21 days after the statement date, but it might vary somewhat.

 

So to grow your credit score higher, you make the same $200 purchase. Then you wait for the statement to arrive, then immediately pay it in full.

 

In both situations, you will not pay any interest, as you've paid the bill in full before the due date.

 

The best way to use a credit card to help build credit is to simply put a few bills on automatic payment onto the credit card. For example: Cellphone + Internet bills. They will automatically be billed to the credit card, then you just pay the credit card bill at the end of the month, every month.

 

That will help grow and boost your credit, and you can even take the credit card and hide it in your house somewhere, so you're not tempted to use it outside and accidentally risk spending too much (This is for people with bad credit card discipline).

 

Not buying stuff you cannot afford is definitely good advice. But if you live in North America, and aren't in extreme poverty, then eventually you will probably need credit for something - the most likely of which is: Buying a house. This is a large purchase, which in most cases is too large to save up for ahead of time. It can take decades to save up to $300K-$600K (or whatever - house prices vary more than hooker prices - some areas you can buy a kickass house for $150K) needed to buy a house. By using credit, you can enjoy that house while you pay for it, instead of only buying a house when you retire.

 

Of course, there are alternative methods. For example, renting a similar yet cheaper house while you're a working adult, and putting the saved difference into an investment, and then buying a house when you retire. But lots of people don't want to deal with the annoyances, quirks, and restrictions of renting.

[dizmo]

The only stupid question is one that you never ask. After all, if you hadn't asked, you wouldn't have gotten all of the great tips and advice in this thread
It's definitely a good idea. You won't even pay that much in interest if you don't pay it off for a bit. You should though, just follow what @dalekphalm said. He basically said what I was going to say.

 

On 1/1/2018 at 2:15 AM, Teddy07 said:

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

Do you not need a credit history in Germany?

On 1/1/2018 at 11:14 AM, Princess Cadence said:

Getting a credit card and becoming an adult are by no means related

 

I kinda agree above, just save the money and buy in-cash you even usually get some discounts doing so, I have an international credit card though I only use it as fund for my PayPal which I use to commission some draws some times, never bought durable goods with it.

Actually most pricing is inflated to counter the rewards that you get from credit cards. So, by not using a credit card with some kind of rewards system, you're paying more on every purchase. At least that's how it works here.

On 1/1/2018 at 10:28 PM, TetraSky said:

Yup, fully agree with you on that.
If you don't have the cash to buy something right now, save up and buy it later. Chances are it will be cheaper as well.
You never know when bad times may befall you, you may be fine this month, but next month you may lose your job because it burned to the ground or get into an accident that prevents you from working and thus be unable to pay your card anymore.

 

My approach to credits cards, use it regularly just to raise your credit score, never make purchase that you can't pay off immediately.

https://www.experian.com/blogs/ask-experian/better-pay-off-credit-card-full-every-month-or-maintain-balance/

Every card I've ever had, has had insurance in case an accident happens. I think some even had job loss insurance, though I can't recall as I've always had income even if not employed by a company.

11 hours ago, dalekphalm said:

-snip-

 

Of course, there are alternative methods. For example, renting a similar yet cheaper house while you're a working adult, and putting the saved difference into an investment, and then buying a house when you retire. But lots of people don't want to deal with the annoyances, quirks, and restrictions of renting.

There's people that have never rented?! I can't imagine such a thing. Even my ex rented (though, to be fair she didn't pay for it, but she still had to deal with all the intricacies that come with it) and she was loaded. I thought it was just part of the growing up process. Then again, I think cultures where the offspring live with the parents until they buy their own place kind of do it in a smarter light. Or where the parents pay for the offsprings house, and then move in when they get old.

It's a shame Canada really fucked with the care giver system.

[SlipperyPete]

On 1/1/2018 at 4:15 AM, Teddy07 said:

Wait 5 month and then pay for the monitor all at once without any interest! That is the adult way but unfortunately, many people just want to consume as fast as they can.

 

I am now 31 years old and never once had a credit card. I either have the cash to pay at the moment of purchase or I simply don't buy it.

building credit is very important.when buying a house, car or college loans for a kid having credit is important. you can still uphold your principle not to buy until you can afford it. using a credit card to buy something and then immediately paying it off in full is a great safe way to build credit