Budgeting 101:
Your Money Guide For Getting Through School
Today's Lesson: Plastic
12 Steps for students who want to handle credit wisely
The risks are higher than ever if a student racks up lots of credit card debt. Here are the experts' 12 steps for handling it wisely.
- Always remember that credit is a loan. It's real money that you must repay. Before
you apply for the first card, decide what the card will be used for -- Emergencies
only? School supplies? -- and determine how the monthly bills will be paid.
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Go slowly. Get one card with a low limit and use it responsibly before you even
consider getting another.
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Shop around for the best deal.
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Study your card agreement closely, and always read the fine print flyers enclosed
with every bill. Credit card offers vary substantially, and the issuer usually can
change the terms at will with 30 days notice.
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Try to pay off your total balance each month. Just paying the minimum is a trap:
If you pay off a $1,000 debt on an 18 percent card by just sending in a minimum
payment of $16 each month, it will take more than 15 years to repay!
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If you increase that same payment to just $25 per month, you decrease that payoff
time from 15 to just over 5 years.
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No one wants to carry a $1000 debt for five years. This is just an example of
how a little discipline can make a huge difference.
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Always pay on time. A single slip-up will place a black mark on your credit record
-- and likely will cause your issuer to jack up your interest rate to the maximum.
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Set a budget, follow it faithfully and watch how much you're paying on credit.
A good rule of thumb is to keep your debt payments less than 10 percent of your
net income after taxes. So if you take home $750 a month, spend no more than $75
a month on credit.
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Keep in touch with your issuer by notifying the company promptly when you move.
In the event you must be late on a payment, call them before it's late. They want
your business for life, so they may be willing to make alternate payment arrangements
that won't leave a mark on your credit rating.
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Close accounts you aren't using. Having available-but-unused credit counts against
you when it comes time to buy a car. That's because lenders don't like it when you
have the ability to go deep into debt quickly.
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At the first sign of credit danger, such as using one card to pay off another,
make the card harder to use. Only carry it when you plan to use it, lock it up in
an inaccessible place or entrust it to your parents.
