As more and more students graduate and earn their degrees, many feel that their
excitement at starting a new life and career start to fade away rather quickly with the realization that their disposable income is being eaten up by their student loans and credit card debt. Finding out that even though you’re working full-time, you can’t afford to buy a decent car or even furnish your home because you’re still paying off college expenses (be they actual books or Ramen Noodles) can be quite a downer.
The problem with buying things using your credit card is that you can’t actually see the damage being made. What does that mean? We’ve all been at this point: You’re at the check-out at your local supermarket. The cashier checks all you’re items and says: “That will be $50 sir. Will that be cash or credit?” You reach into your wallet and pull out the amount in bills, pay the woman and you’re on your way, thinking: “Wow, I was gonna eat out tonight, but I think it would be better if I ate at home instead.”
Now let’s take that scenario again, this time with one change: “That will be $50 sir. Will that be cash or credit?”. This time you take out your credit card and hand it to the cashier. The transaction is complete, she hands you the receipt and you’re on your way, thinking: “Wow, a burger sounds really good right about now!”
When you pay in cash, you can “feel” the money leaving you. Your brain registers the change in what you had before and how its not there anymore. This is not the case with credit cards. Placing a card on a counter and then taking it back affects nothing emotionally.
Discretion when using a credit card is essential. Chances are, that if you’re like most college students, you’re credit card bill isn’t listed with just the bare necesities. Most likely you used your student credit or loan money to order Pizza, improve your music collection, pay your cell phone bill or buy clothes you really didn’t need.
To put into perspective how dangerous overcharging is, let’s take a look at an example. Let’s say you charge $2000 to your credit card. If you pay $100 a month, at an interest of 10%, do you know how long it takes to pay that off? 2 years, assuming you dont charge anything else (unlikely). Sobering, isn’t it? Now factor in the fact that the average interest rate for a college student is 18%. With that same $2000 charge, you would have to pay around $400 more just in interest fees, not counting late fees, annual fees, etc.
Now before someone gets scared into never using a credit card ever again, they should know that credit cards are now a fact of life and there are many good reasons to have one. They offer protection for your purchases, provide a safety net in case of emergencies, and allow you to shop online. The trick is to use it responsibly.
Here are 5 things you can do to avoid abusing credit:creditcards
1. First things first, read all application materials carefully - especially the fine print. Entering a college usually means many people will offer you credit cards, including deals, promotions, "teaser rates", and more. What they won’t tell you right away will be what happens to your interest rate if you're late with a payment or fail to make a payment, or what the interest rate is for a cash advance. These are the questions you should be asking BEFORE you get the credit card.
2. Set up a budget. Yes, you probably heard of this before, many times. Why? Because it works. It not only helps you keep track of all your spending, it also lets YOU be in control of your money and not the other way around. Don’t know how to make a budget? You don’t have to start with a full blown accountant’s budget, a budget can be simple. One way to start is to simply take a mental note of everything you buy, and then write it down later. The important thing is to be aware of how much you are spending.
3. Find ways to cut expenses. This is much easier than it looks; it just takes a bit of sacrifice. College textbooks are very expensive as most people already know. In all, a new set of college textbooks can cost up to $500-$1000. Per year. A cheaper way around this would be to buy used books. Does it really matter if there’s some writing on the margins? Is this something you’ll cherish for the rest of your life? The majority of these books you’ll probably never read again.
There are many other things you can do to cut spending: actually using coupons instead of leaving them in the drawer, when going to the movies go on 2-for-1 day, limit online shopping for clothes/music (deceptively cheap prices). Sure, what you’re doing is just saving few dollars a month, but, that money adds up and interest isn’t being charged on it.
4. Avoid impulse shopping on your credit card, or all impulse buying if possible. One aspect to especially tread carefully is when choosing a cell phone service. Again, check all of the fine print. Shop around for the best cell phone deal. Avoid going over your free minutes. Send more texts than calls (if they’re cheaper on your plan). Calls over and above your allowable minutes are very expensive. If impulse buying is a problem, then make sure to not carry a credit card when shopping. As explained earlier, you won’t feel your savings wasting away.
5. Don't take a credit card to college unless you're sure you can resist the urge to use it. This is probably the most important piece of advice. If you know you’re not going to use it responsibly, why have one in the first place? If it’s only going to give you trouble, then it’s not worth the convenience. A great alternative is using a debit card. They offer the same convenience of a credit card, without the dangers of going into debt. Once you dry up your account, you can’t use it anymore.
If you absolutely need a credit card, then there are a few things to keep in mind. Paying off your credit on time should be priority number one. If you can't pay the balance off when the credit card statement arrives at the end of the month, you'll end up paying even more in interest charges and late fees. The wisest action to take is saving your credit card only for a money emergency, and only use it if you're certain you are able to repay the debt.
A credit card is a very useful tool, but it should stay that way, just a tool. Something you can control. Don’t let credit debt take a hold of life your life and keep you from enjoying it. Be smart and plan ahead. Learning how to manage credit is an essential part of your current and post-college life, and depending on how you manage it can mean the difference in getting that new car at the age of 25 or 35.