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Are
u ready for A Credit Card?
You may already have a credit card, but if you don't, you
can be sure there will be many opportunities to get one
once you arrive on campus.
Many credit companies set up tables in the common areas
of college campuses to encourage students to sign up for
credit cards. Often, they give away trinkets such as T-shirts,
water bottles, frisbees, coffee mugs, etc. in exchange for
having you fill out an application. Sound easy? It is, but
think twice before you do it.
Unfortunately,
many of the credit cards offered on campus may not be a
good value for students. According to a study conducted
by the U.S. Public Interest Research Group (PIRG), students
who obtain credit cards at campus tables have higher unpaid
balances than those who do not. Carrying high, unpaid balances
is one of the quickest ways to incur too much debt and fall
behind in payments.
Why
do Credit Card Companies Target Students?
Surprisingly, students are a good credit risk, despite the
fact that they often do not have jobs and are also borrowing
student loans. Research has shown that student borrowers
are valuable customers because they tend to stay loyal to
their first card, continuing to make purchases for many
years to come.
The
Advantages of Credit Cards
Like loans, using credit cards can help you build a positive
credit history. This can enhance your ability to receive
a private student loan, buy a car, rent an apartment, get
a job, and eventually, try to buy a house. Of course, there
are other advantages to having a credit card including:
Security in emergencies;
Reduced need to carry cash or checks; and
Enhanced personal responsibility and independence.
However, only one national card like a "Visa"
or a "MasterCard" is necessary to receive these
benefits.
How
Credit Cards are billed?
Unlike repayment on a traditional loan, such as a student
or car loan, credit cards do not allow you to spread the
amount you owe over a fixed period of time. Instead, you
are required to make a minimum monthly payment, which is
the smallest amount you can pay and still meet your cardholder
agreement (the terms you agree to when signing up for the
card).
The minimum payment is usually 2 percent of your outstanding
balance. Unfortunately, by paying only the minimum each
month instead of paying off your entire balance, your debt
will continue to grow. Many credit card companies also charge
late fees (usually 2 percent of the outstanding balance),
and higher interest rates on cash advances.
So
Are U Ready for a Credit Card?
As a student, you will have to decide for yourself if you
can handle the responsibility of a credit card. They are
easy to get but not so easy to manage, especially if you
end up with a high, unpaid balance on which interest is
accruing, but payments are not being made. According to
the PIRG study, of the 79 percent of surveyed students who
use credit cards for multiple purposes, only 13 percent
reported limiting credit card use to emergencies.
When making your decision about a credit card, ask yourself
the following:
Do I need a credit card?
Can I afford a credit card?
Will I be able to pay off my balance each month?
If you decide to apply for a credit card,
be a smart consumer and shop around. Look for a company
that offers the following:
Low
interest rates or finance charges (combined, they are called
APR)
Low or no annual fees
A grace period (time during which no payments are due) before
finance charges are posted
Other benefits including purchase warranties, free gas,
airline miles, etc.
Helpful
Hints on Using Credit Cards
Credit cards can be helpful in emergencies or if you are
able to pay off the balance each month, but be wary! Credit
cards can also get you into trouble. Here are some helpful
hints on using credit cards:
Fees
Watch out for carrying balances. Some cards
charge 20% or more in interest. (Interest is usually called
"Finance Charges" on your statements.)
Look at your statement carefully and call
the company right away if you have any questions.
There is usually a large finance charge
for cash advances and interest begins accruing as soon as
you take the money out, not after the next statement closing.
Be aware of annual fees. Many times you
are charged $50 or more just to have the card.
Watch out for introductory offers! When
you receive a credit card offer in the mail with a low rate,
it may expire in three or six months. Note when and by how
much the rate increases after the "introductory offer"
expires. You may not remember when it expires, but the card
company will.
Think about your purchases. If you are not
able to afford the purchase now, chances are you won't be
able to afford it in a month when the credit card bill comes
in!
If you get behind
Cut your recreational expenses.
Call your credit card company. They may
be willing to work out a repayment schedule with you.
Develop a budget and stick with it! Everyone
makes mistakes, but don't prolong yours. Bad credit will
follow you and hurt your chances for mortgages or loans
down the road.
Look into credit counseling services. Many
offer educational programs or individual counseling sessions
to help you get back on track. |
