TORONTO (September 2, 2008)… It’s that time of year, when young adults head back to university and college. For many, already accumulating substantial student loans, offers of credit cards can seem like an easy solution to immediate needs. Consolidated Credit Counseling Services of Canada Inc., a non-profit credit debt management and counselling agency offers some timely advice.
“We have clients who call us desperate to get out of debt and they are still in university. We also have clients who began accumulating debt while still in post-secondary school and never managed to pay it off,” says Jeff Schwartz, Executive Director of Consolidated Credit. “Building good credit is important, but students should be aware of the pitfalls and know how to use their credit cards properly.”
Consolidated Credit’s experts reiterate that building good credit is an important step in life, but students should be aware of the pitfalls and know how to use their credit cards properly. “Without full-time employment credit card debt can become very hard to manage,” adds Schwartz. “When it comes time to make those important purchases in life, such as a house or car, the cleaner your credit rating, the better.” Here are the experts’ 10 steps for students to handle credit 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? Determine how the monthly bills will be paid.
- Go slowly. Get one card with a low limit and use it responsibly before you even consider getting another.
- 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 the minimum each month, it will take more than 12 years to repay.
- Shop around for the best deal.
- 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 15 days notice.
- 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.
- 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.
- Keep in touch with your credit card company by calling them promptly when you move. In the event you must be late on a payment, call them beforehand. 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.
- Close accounts you aren’t using. Having available-but-unused credit counts against you when it comes time to buy big ticket purchases like a car. That’s because lenders don’t like it when you have the ability to go deep into debt quickly.
- 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.