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Budgeting. A credit card is not an invitation to spend money,
it's a means of spending what you have. Credit cards have a tendency to look
like easy money - if you don't have the cash to buy something now, ask yourself
how will you pay off the bill. If you don't have a good answer, don't
use the card.
Minimum payments are a trap. If you run up a $1,000 bill on a
credit card that charges 15 percent interest and requires a 2 percent minimum
payment each month and never charge another item, but make only minimum
payments, it will take 14 years and four months to repay the debt. Your total
principal and interest payments over that time will be more than $2,100. It's
always good advice to reduce debt by as much as possible, but low-income
students are particularly vulnerable to the minimum-payment trap, running their
balances up while paying off just a small amount.
Beware of the penalties. Always pay on time, even if it is
just the minimum. Not only have late fees skyrocketed - it's not uncommon to
find a $30 charge applied for a payment that's a day late! The terms of
many cards allow the issuer to change the rate of interest on your account to
something much more than you have bargained for. Many “teaser rates” programs
where you get an ultra-low rate for an introductory period are discontinued if
a payment is so much as a day late. And if you pay late a few months in a row,
some credit cards issuers will hit you with an annual percentage rate up to 30
percent.
Rewards for good behavior are more than money saving. These
days, credit is about a lot more than your bills, especially for students. Many
employers review credit reports to judge the character of prospective
employees. A history of late payments, over-the-limit charges, or just too much
debt does not paint a pretty picture.
Understanding the fine print. The real information about
credit card offers can be found in the fine print at the bottom of the
application. Some issuers have shortened grace periods to 20 days from when the
statement closes, meaning that you have just a few days from when the bill
arrives to pay. This is also where they disclose when a payment becomes late,
the penalties for late payments, how rate calculations can change, etc. If
these terms are not clear to you call the card issuer. Do not assume it is the
same as any offer you have had in the past, even if it is a card from the same
issuer.
Shop around. Terms, rates, fees, credit limits, and all of the
rest vary from card to card and there is no reason why anyone, even a student
with no credit history, can't shop for offers that are best suited for him/her.
Avoid paying annual fees, high interest rates for cash-advances and
balance-transfers. Find out from the company what everything means and then
find a card that you can live with, rather than just taking something that's
thrown at you.
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