Vail Daily column: Now that you’re 18 …
Editor’s note: This is the third part of a six-part series.
In the first two parts of this series, we looked at matters relating to cars, driving and insurance, renting your first apartment and having fun as an adult. This included a discussion of drug and alcohol possession and abuse.
This column deals with money matters and what changes when you turn 18.
Upon turning 18, you are considered competent to enter into contracts. What this means is that you can sign legal agreements (and be held to their terms), open bank accounts and apply for credit in your own name.
First, what exactly is a contract? Simply, it is a binding agreement between two or more competent parties to do (or not do) something. It is an exchange of reciprocal consideration (that is something of value in return for something else of value). A contract may in most circumstances be either oral or written and must pertain to something which is not illegal. (You cannot, for example, contract to transport illegal drugs.) Written agreements are generally preferable simply because you can more easily prove what was agreed to by both parties.
You may want to consider a couple of tips regarding contracts before heading out into the world: First, read the contract fully before signing it. If there’s something you don’t understand, run it by someone knowledgeable before signing it. Second, do not sign a contract with blank spaces. Either fill them in or cross them out. If you disagree with a contract term, work it out with the other party before signing. Keep a complete copy of the agreement. If you break a contract because you didn’t understand it or you have changed your mind, you will likely not be relieved of its obligations and you may be sued. If you incur unpaid debt, you may often work out an agreement to pay it over time; make sure that any such agreement is in writing.
A few questions to ask before opening a banking account include: Is there a minimum balance which must be maintained in the account? Does the account earn interest and how much? Is there a monthly service fee (and how much)? Is there an ATM fee (again, how much)? Are the canceled checks returned to you or kept at the bank? You also need to know the bank’s policies if you write a check for more than the amount you have in your account (a bounced check). Is there overdraft protection and what will it cost?
If a check bounces, you can be charged considerable penalties. You should also know that writing a check when you don’t have enough money in your account to pay it may be a crime. Checks are generally good for six months from the date of issue. Thanks to the Check Clearing for the 21st Century Act, checks may clear instantaneously so if you think you’ll write a check and cover it before it clears, you may be in for a surprise.
An ATM (automated teller machine) card and a debit card are two different things. An ATM card allows you to conduct transactions into (deposit) or out of (withdraw) your account. A debit card is used to electronically transfer funds from the cardholder’s account. Generally, to use an ATM card, you need to enter a PIN (personal identification number) whereas debit cards usually do not require a PIN. Accordingly, if a debit card is lost or stolen, an unscrupulous finder could empty your account. If a debit card is lost or stolen you must report it promptly.
A credit card is credit, in other words, a loan. You are borrowing money. Credit cards are not the same as cash. Most require the payment of any annual fee and other charges. Interest on a credit card for purchases (unless paid in full each month) and on cash advances, can vary widely and can be sky high. Probably the most common problem in people’s personal financial situations in the U.S. is credit card debt. You should do everything in your power not to fall into that trap, even if it means deferring the purchase of things you want but don’t absolutely need.
If you lose a credit card, report it immediately. If you do so, your liability for purchases made on it after its loss will be limited to $50.
A credit report is a summary of your debts and your history of how promptly you have paid them. It is a report on your credit-worthiness and is used by lenders of all kinds to determine whether they will loan you money and upon what terms they will extend a loan. The better your credit, the easier it is to get a loan and the better the terms will be. Your credit report is your passport into a secure economic life.
Credit bureaus collect and store your credit history and make the information available to creditors whenever you apply for a loan or a credit card. Under federal law, you are entitled to one free credit report per year from each of the three major credit-reporting agencies. You should periodically check your credit report for inaccurate information, as that information could compromise your ability to secure a loan. An inaccurate credit report can also be, at times, a red flag for identity theft. Keep your credit good. It can take as much as 10 years to correct bad credit.
A term with which you should be familiar is collateral. Collateral is something of value accepted by a lender as a backup in the event you fail to repay your loan. If you take out a car loan, for example, the car itself may be collateral for the loan. If the loan is not paid, the car may be repossessed and sold by the bank to help pay back the loan.
If the collateral is insufficient, you will likely be on the hook for the remainder of the amount due. Your failure to pay back the loan will hurt your credit rating.
Lastly, when it comes to making loans, it is against the law for a creditor to discriminate against you because of your race, sex, marital status or other similar distinctions. Lenders can only make distinctions based upon your credit rating.
Next in this series, working and the dreaded “T” word: taxes.
Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Stevens, Littman, Biddision, Tharp and Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, divorce and civil litigation. Robbins may be reached at 970-926-4461 or at either of his email addresses, email@example.com or firstname.lastname@example.org.