Do I really need a credit card?
If you are able to pay for what you
need with cash, check, or a debit card, you might not need a credit card. On
the other hand, credit cards are great for emergencies and are useful for
purchasing your essentials online. Paying your credit card on time every single
month is also a good way to build your credit history.
Can I afford to have a credit
card?
If you pay a hefty annual fee just
to have a credit card, or regularly carry a balance on your card and pay a high
interest rate, you may find yourself spending a lot just to borrow a little. On
the other hand, you can make your credit card work for you by choosing a card
with no annual fee and by always paying off any monthly balance when you get
your bill. That way you do not have to pay to have the card, and you get the
benefit of using someone else’s money for a while without having to pay for it
in interest payments.
What will I use the credit card
for?
You should never finance your
college education or your living expenses by using a credit card. Also, using
your credit card for things you don’t need and can’t pay cash for is a bad
idea. Sure, it’s tempting to whip out the plastic to buy that “something”
you’ve always wanted, but if you’re not willing to pay cash for an item, then
don’t buy it on credit. Eventually you will have to pay for it out of your
pocket. If you get into credit card debt because you buy things with your
credit card you don’t need and can’t afford, you’ll end up having to dig deeper
to find the money to pay for it when the bill comes. You may also use up all of
your “credit cushion” that can help you if you have an emergency.
How much credit should I get?
If you are new to credit, or you
are a student without a steady income, don’t accept a card with a high credit limit,
just because the credit card issuer is willing to give you one. Sure, it’s
flattering to be offered a high credit limit but it might tempt you to charge
more than you can realistically pay back. Start out with a low credit limit to
test the waters. Also, don’t accept an automatic credit limit increase that
card issuers often give their cardholders, unless your income has increased
sufficiently to pay off more debt.
How am I going to pay for this
when the bill comes?
If you can pay off your balance
every month, you’re making the credit card work for you.
If you think you’re okay because
you can pay the minimum payment every month, get ready for a very expensive
long haul. Though minimum payment amounts can vary among credit card issuers, one
thing is for sure, paying only the minimum will mean you are paying for years
after you leave college, even if you stop using the card.
Consumers Union Back to School Tips
for College Students Page 3
For example, if you pay only the
minimum payment due each month on a $1,000 balance with an 18% APR, by some
estimates you’ll spend seven years and an additional $1,731 in interest to pay
back what you owe. Others estimate it could take longer, nearly 13 years, plus
over $1,000 in interest. Either way, by paying only the minimum amount due, you
could spend almost twice as long, and perhaps three times as long, paying off a
$1,000 balance as it takes to earn a four-year degree.
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