Building Your Credit vs Debit Card

ABOUT THIS EPISODE

What's the difference between using a credit card and a debit card? When is it ok to carry some debt. Listen as John Browning shares some sage advice AND one place to put your money that has a guaranteed return.

Welcome to the build your life podcast with John Browning. Build your life as a relaxed and unedited conversation with financial expert John Browning. John's the founder of Guardian Rock Wealth, with offices in Hawaii, Colorado and Illinois. John's also the author of the book build a life, not a portfolio, a guide to your financial future based on your personal values, which you can purchase on Amazon, or stay around to the end of today's show and I'll tell you how to get a freak copy mild right to your door. I'm Michael Dlan, your host for the next few minutes as we chat with financial expert, business owner and author John Browning. Well, hi, John Browning. How's your day gone, sir? My Day is going great. Beautiful weather, beautiful, beautiful morning so far. Yeah, that's great. I'm glad to hear that. Well, as always, good to be with you on your podcast. I am looking forward to today's topic because it's something that I've talked with my kids about many times. We hear it a lot. I hear it a Lonny way, and that's the whole concept. Johnny around, I guess debt, good debt, using credit cards, shoo wins in okay to use credit cards? What about a debit card? And and how do how does all of that play into financial planning, good financial planning, and building a life, not a portfolio? What are the ups and downs, I guess, of those? What are your how do you make and, and don't forget these things, the phones that now my son's, who are younger than me, obviously have their credit card loaded into this thing and they just tap it wherever they go ahead and figged that one out yet. But how do you talk about all of that as far as building credit and debit cards and all of that? Help me understand that one. Yeah, so this is going to be certainly it can seem like it's more for the beginning investor the be folks starting off in light life, and it is, but it also has to do with, you know, somebody trying to build their credit, even if they are a little further on in life and maybe they've never...

...done that. But there's some really good reasons to just use a debit card. There's also some really good reason just use cash. And we're coming, there's a lot of rumors, or coming on that point where maybe we go to this cashless society right, though. You know, what do you do about that? And they you know, it's not like you can get in the way of that. Right. That's going to be likely a governmental requirement at some point, but we're ways away from that yet. We still there's a lot of people that are using cash. But and there are some debit cards that do help you build your credit, but most of them do not. You'd have to really search around for that. So the idea of a debit card is that you've got an a count that has some money in it and you're debiting, in other words, you're taking money out of that account that already has some money in it. Does that make sense? So kind of like a kind of like a check in a sense. Right, exactly. And a lot of occurreds are actually tied to your checking account or tied your savings account, and you want to be really careful with the ones that are tied to your savings account because you've got to remember that's your savings not you're spending account. Right, it could be really tempting that I got more money there. Yeah, yeah, so the idea of a credit card, though, is that's where you can really begin to build what we call your credit. Yeah, and and my kids, my son, started getting credit card offers when they were definitely by eighteen, probably seventeen, and they just started flooding in. That's that was dangerous. That is dangerous, especially if you're anything like I was when I was a teenager. The free money, right, that's exactly how I was when I was a teenager. John, yes, right, yeah, and and you know, it happens to it happens to adults, to you know, it runs up on you really quick...

...if you're not there's something about only being able to spend the money that's in your wallet. Yeah, makes you really pay attention to what things lost and whether or not you're really getting the value out of that that you should be. Right. Yeah, well, we've been on an on. My wife has had us on that old envelope system for years. It's all computerized now, but it's that same thing of you have the x amount of dollars for groceries and gas and everything, and but it is easy to overspend those with the credit card, especially when you know you have a home depot project. MM Yo. Yes, projects are the worst or lows or lows rose. Yeah, we are no respecter of home improvement companies. Right. Yeah, so, okay. So the debit card is tied to my it's tied directly to my bank account, basically. So when I when I swipe a debit card, that money is really zapping out of my bank right now. That's correct. A credit card, I swipe it now, I've got this great period of thirty, forty five days and when I pay it off, that helps me build credit with a with a credit card coming, I guess. And that way when I go buy a car and three years or four years they say, well, I have a run your credit rating. Is that the because you need some credit, right, kids, I mean as you build, and even adults, but you need a good credit writing to get lower interest rates on things. Right. That's right. I mean, regardless of what we think or what a belief system is, the reality is that we all have a credit score, even if it's zero, right, I mean even it was there three hundred, I because the lowest, but we all have it. So you want that for various reasons, not just if you want to go get a car loan or mortgage or something like that, but even if you want to hook up utilities to your house. They look at your credit score and if you've got a good credit score then you don't...

...have to pay a big deposit. Usual. Okay, even little things like that, having a good credit score can be really, really valuable, and I've got a lot there's a lot of debate. You should, you know, never ever go into debt for anything and all credit cards are bad and all that. I always hesitate when it's an all or none or never. Yeah, and hesitate with that because in my opinion, and it's not shared by everyone, dead is like a fire. So you can keep self warm with it, you can cook with it. Super important actually over the years, as that was one of the big innovations at one point, is how to control and handle fire. I see, dead is kind of the same thing. A little bit controlled can be very beneficial to what you're trying to do and getting along in life. And the best way that I like to tell the younger people or people trying to build credit for the first time is to get one of those credit cards. There's there's a there's even a couple programs out there that will allow you to deposit money and it works like a debit card, but they help you build your credit. But those are those are a little far and few between. You can get a credit card. That will number one. You'll get you might get cash back or miles, airline miles, not that anybody's flying that much these days, or some other or some discount or something like that. So it's beneficial to use, which is another dangerous thing. Oh, I'm saying, look how much money I saved. Yeah, you just spend a bunch of money to save that money. So it's not really money that you say. Right, so you got to be careful, but just get it with a small credit amount, so they will only allow you to charge up to maybe a thousand dollars or one fifteen hundred or something like that. That's how I helped my own kids, as they became adults, learn how to use a credit card and and help...

...them kind of get used to it and then pay that off, because credit cards are great and that you got. You have that roughly, usually thirty days grace period, as you were saying, where you don't get charged interest if you pay it off. Problem is that most actually people don't pay that off, and then it takes those thirty days and then every day they're after and applies it on a daily accrual basis, so it's not even every month, it's every day at a cruise which makes a big difference in what you actually end up paying credit card companies. Well, especially when they only charge you like two percent interest on that. Oh, yes, wouldn't that be great? Yeah, yeah, like twenty two up to twenty two percent. Yeah, annually, ezy. And so I always tell people who come to me and they say, Oh, I really love to invest, I really love to buy this hot stock I heard about on, on, wherever they heard it about. Yeah, and and I say well, okay, so do you have any credit card debt? Well, well, yeah, I've got XYZ amount of credit card debt. And said, well, do you think that this stock they're talking about will guarantee that you're going to make twenty one, twenty two percent? Well, no, I know there's no guarantees in the stock market investing. I know that. Okay, you know what I can tell you? An investment that will guarantee that you make that and that's paying off that credit card. John, that is brilliant, sir. I just yeah, when you were saying that, I thought, wow, a guaranteed investment, a guaranteed return on your investment money is paying off your credit card. That that's brilliant. I never thought about it quite in those terms because, I mean, you get the bill and it's like well, no, wonder, it's easy because they only want fifty bucks a month, even even though I owe them for five hundred. That's right, they're happy to take fifty bucks a month. Well, wow, that return on my investment. That's a neat way to think about it, that you're getting a...

...guaranteed twenty one percent because you're paying that off and that's whether you're being charge. I like that. That's a that's you should write an email or a blog out of curl about that. Yeah, the best guaranteed retreat of return and then explain that, because that's that's way cool. Yeah, especially now, because we're recording this like three weeks before Christmas. Do people charge like Christmas on on credit cards, John, and then get the bill in January and pay for it the rest of the year? Yeah, and it's hard to keep track of because they don't. You don't, you know during the month of you know, during the month you don't get a automatic running it tally unless you specifically sign on to your accounting look and say how much have I spent? And keeping that all in your head or writing it down just something people don't do. Write. The other thing that kills us is we have a visa card, right, but we also have a coals card and a target card and an Amazon card, and so you have like seven different cards or shuffling in it like playing poker. Well, which one am I going to use? Right, so, but paying them off, that's the big deal. And and I really like what you said at the beginning, because it's not just for young adults, but it could be somebody who just maybe he's recovering from a divorce situation. Right, they just got wiped out or something. Start Small, getting a debit card of some nature that will help you build some credit, or a credit card with a limit. Make sure you're really control. That's the secret. Is being discipline and unfortunately I married a great discipline wife and we've paid our credit cards off every month for over thirty years. Praise Lord. Right. So, but that's the secret, is not overcharging and having the discipline to pay it off, because when you stop paying it off and it starts accumulating your it's the snowball effect. Yeah, that's in the wrong direction. Yeah, and they require to put on your statement now that if you just pay the minimum payment, it'll take you, and it's usually like thirty years to pay this off right at twenty...

...some percent interest to so it's kind of crazy. But Kevin, to get back though, to why would you even use a credit card? Right? Well, of course convenience and of course they lure you like you like you go fishing. You lure with a you know, five percent cash back bonus or one percent or whatever it might be, or you know this mini are airline miles or five percent off everything you buy at whatever store if you use that store credit card, which have, by the way, or some of the highest interest rates out there. And so that's the reason you might want one. The other reason is to build that credit because I think, and again this is my opinion, is that at some point it's very difficult to buy a car with cash, especially when you're starting out and it may not be realistic for you to walk, Jog, bike to where you work. In order to make money, you have to have a car. Now you can buy that beater, right, you can buy that beater and you know I've seen that done. The problem there is that you're not making a lot of money to start with. You buy the beater and you buy it with cash, maybe two grand right, and it breaks down, predictably breaks down on you as you're traveling down the highway and then you have to get it towed by law. You can't just leave a sitting on the side of the road. That cost money and then you're going to get it fixed. Well, it might be more than the cost car to get it fixed. So my suggestion is build up your credit to the point where you can get a number one, get a loan for a car, preferably a lower interest rate, and you do that by consistently paying off that credit card. And if you're trying to rebuild your credit a little bit too, you know there's there's certain points, are certain things that the credit rating agencies, which is experience, transunion or the two main ones, that they look at. So if...

...you've gotten yourself into trouble, maybe been in that divorce situation or something like that, and you say you've charged up to ninety percent of your credit limit, okay, and it's just it's something has happens. Your ninety percent of credit and that hurts your credit rating, even if you're paying it off on time. Matter of fact, there's a few different lay of levels where it hurts it and hurts it worse and worse. So your first goal is to get it down past ninety, and I like to break things down in smaller bite sized people pieces for people, because it can just seem like such an astronomical goal to get it down below fifty percent. Let's do it a little bit of a time and get it below ninety. They reward you for that. And get it below and keep it below. Get it below seventy percent of your out saying and that helps even more. Then you get it down and keep it down below fifty percent and your credit rating will begin to go up substantially. So if you're trying to repair your credit so that you can move forward in life after something has happened that you know, I don't ridicule folks that that have had that happened because you never know their story. That's right. That's right, and it could be a real good reason that they're there. So that's another way to kind of repair your credit. The credit is such an important part of our lives that this is a really good question to address. Yeah, it really is, and I'm sure there's a lot more there that people can learn. For I'm reading your book and so you can get a copy of John's book at his website, Guardian Rock wealthcom. John, thanks for helping me understand a little bit better about the building credit devil cards, credit cards and all things credit and how I can have the greatest return on my investment guaranteed by paying off my credit cards. That that's really cool. I love that one. I'm looking forward to seeing the email that you're going to write on that coming up. So, Buddy, thanks a lot for another great episode. We'll talk to you soon. All right, sounds good. We'll see you soon. Money really is a big part...

...of our lives, and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that can help you build the life that you want. If you like, John Emilie a free copy of his book build a life, not a portfolio, go to John's website, Guardian rockwealthcom, and click the contact us link and send your request. John Will Mell a copy of his book right to your door absolutely free. Thanks for listening to building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sent to you automatically when it's released. Have a terrific day.

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