1 : A fixed-rate card is not really a fixed- rate card. Legally, the credit card company can jack up your interest rate even on a “fixed-rate” card as long as it informs you fifteen days in advance, so there’s no guarantee the rate will stay fixed for any longer than that. Read the notices that come with your monthly statement to make sure you don’t miss a rate change announcement. This will give you time to shop around for a new card with a better rate if your credit card company announces an increase.
2 : The blank checks your credit card company occasionally sends you to use at any business that accepts your credit card come with an outrageously high interest rate. What’s worse, most credit card companies apply your payments to your regular balance until it’s at zero before they apply even one penny to the bal- ance you incurred from using the blank checks with the higher rate. That means if you always carry a balance on your credit card, you could still be pay- ing higher interest rates on the funds from the check fifteen years from now. The checks are also easy targets for theft, so shred them as soon as you receive them and toss them in the trash.
3 : Those “skip a month’s payment” notices you get from your credit card company because you’ve been such a good cus- tomer are not really a favor. You’ll continue to accrue interest during the “free” month and will end up paying more interest than if you had made your regular monthly payment. Try to resist these tempt- ing offers to skip payments.
4 : Typical monthly minimum credit card payments are approximately 90 per- cent interest (income to the lender), and only 10 percent principal (reducing what you owe). Low minimum payments are not a favor the credit card company provides because they like you. They’ll enslave you to the credit card company for the rest of your life, so always pay more than the minimum.
5 : Zero percent interest credit card offers area sales ploy. The interest rate will go up, and may be higher than the rate on a card that doesn’t offer zero percent for an intro- ductory period. Read the fine print to make sure you know exactly when the introductory rate expires,and take the offer only if you’re positive you can pay off the balance before that date.
6 : Cash advances on your credit card are an expensive way to borrow money. Besides the one-time fee of 2 to 4 percent of the amount of the cash advance, the interest rate is usually 2 to 6 percent higher on cash advances than oncredit card purchases. In addition, there’s usually no grace period on cash advances, so interest begins to accrue immediately.
7 : Premium credit cards, like Gold and Platinum cards, are often not worth the additional fees you pay for them. In return for an annual fee that is two to three times that of a standard card, plus higher interest rates, the bene- fits you receive (discounts, cash back, travel upgrades, special insurance, or some other perk) are often worth less than what you paid for the “privilege” of having the card. These color descrip- tions appeal to your need for status but they do very little for you financially. A regular card without the fancy-sounding name is usually the best choice for students who carry a balance.
8 : Credit card companies offer cobranded affinity cards that contain the name and logo of your school, your favorite sports team, or charitable organization in return for providing commissions (kickbacks) to the organiza- tion. Don’t consider the cobranding in your decision about which credit card is best for you; look only at the financial considerations. It doesn’t make sense to pay higher interest rates or higher fees just to have a name or logo on a credit card you hide away in your wallet. Even though you receive perks, the money comes out of your pocket in one way or another.
9 : As of 2003, the average credit card debt for undergraduate students was $3,262. Making the minimum monthly payment of $81 at 18 percent interest, it will take more than twenty-two years to pay off the balance if you never charge another penny. By the time you pay it off, you will have repaid more than double what you borrowed. Does this make sense to a smart college student like you?
10 : The credit card companies that line up on campus to hand out credit card applications aren’t there because they want to do you a favor by issuing you a credit card even though you may not have a job. They are there because having you and your fellow students committed to them at a young age is worth the millions of dollars in fees they pay your college, at your expense, to set up camp in the places where you hang out. Many colleges also get a percentage of every dollar you ever spend on credit cards you signed up for on campus.
11 : If you carry a balance on your credit card, rewards cards like cash back or frequent flyer miles may cost you morethan you’ll gain in benefits because these cards have higher interest rates. Sign up for a rewards card only if you’ve proven your ability to pay off your balance every month, and consider the perks as a reward for your good behavior.
12 : Think about why a credit card com- pany would givea credit card to someone with no job and no (or very little) income. Either they think your parents will bail you out if you get into debt, or they think you’ll become enslaved to credit card debt while you’re young and inexperi- enced and they’ll own you for life. Make them wrong on both counts. You’ll graduate far ahead of your peers financially if you stay out of credit card debt.
13 : If you’re looking for a credit card, try to find one without an annual fee. If you already have a credit card with an annual fee, call the phone number on your monthly statement and ask if they’ll waive it. Many credit card compa- nies will do so if asked because the credit card industry is very competitive and they want to keep you as a customer.
14 : The worst thing about credit card debt is that you can end up paying interest on your interest. As your interestcharges accumu- late and get rolled into your balance, your next month’s interest is calculated on the amount you borrowed, plus the interest you’ve incurred, creating a snowball effect. That’s why it’s so important to pay as much as you can and not charge things you can’t afford to pay off by the end of the month.
15 : Big Brother is watching. A late payment on one credit card will raise your inter- est rates on all your other credit cards and may raise your car insurance premiums as well. Credit card companies keep a close eyeonyour credit history. A late payment makes you a higher risk, and people who are higher risks pay higher rates.
16 : Never look at just the monthly pay- ment to determine if you can afford a new purchase, whether it’s a $100 electronic item or a $20,000 car. Look at the total amount you’ll pay in principal and interest over the life of the loan. Almost any amount can be made to look good by stretching out the repayment period, but you’re too smart to fall for that gimmick. The longer the repay- ment period, the more you’ll end up paying for your purchase, because of interest.
17 : Consider a prepaid credit card as a set of credit training wheels until you have a little practice using credit and are confident that youwon’ttake any nasty spills.You or your par- ents will set a dollar limit and make a prepayment. You’ll be able to monitor your expenditures online or via monthly statements. When your account gets low, you just add more money to your card.
18 : Read the fine print—always! Most credit cards have an introductory interest rate, which will most likely go up after a (usually brief) period of time. If you run up charges on your card, you may find yourself unable to make the payments when the rate increases.
19 : If you can’t pay your credit card bal- ance off at the end of every month, at least find one with a low interest rate. Check the fine print to make sure the low introductory rate lasts more than a few months or you could quickly end up worse off than you started.
20 : Avoid department store credit cards like the plague, even if they offer a tempting 20 percent off on your first purchase. Their interest rates are usually double the rates on major credit cards, so stick with issuers like Master Card, Visa, Discover, or American Express, which are accepted nearly everywhere.
21 : Don’t fall into the trap of thinking you can afford to use your credit card just because you can manage the minimum monthly pay- ment. Most of the minimum payment goes toward interest and verylittle towardpaying off the principal, which means it could take you 20 to 30 years to pay off your balance.
22 : Always pay more than the minimum payment on your credit cards, which is usually 2 to 3 percent of your balance. If you pay the minimum payment every month and continue to use your card, you’ll literally be paying off the balance for the rest of your life, with high interest costs added in.
23 : Frequent flier miles are a big incen- tive to use one particular credit card, but banks don’t offer frequent flier miles out of the goodness of their hearts; theymake money on these cards. The interest rates are often several percent- age points higher than regular cards, so if you carry a balance it could cost you more than the value of the miles you’re earning.
24 : Don’t accept offers for credit insur- ance, which covers your credit card payments if you’re too ill to work. It usually covers only your minimum payment, and the cost can be high as your credit card balance goes up. You’d be better off using the money to pay down your bal- ance each month.
25 : Don’t use your cell phone to place credit card orders. Cell phones are not secure, and someone could intercept your phone call and use your credit card number to run up charges. Find a landline where you can order without being overheard.
26 :Never, ever take cash advances on your credit card except in a dire emer- gency (this does not include a big sale on your favorite jeans or the latest electronic gadget). Cash advances come with a hefty price tag: exorbitantly higher interest rates and high fees. The interest at the higher rate accumulates so quickly it may be dif- ficult to pay it off. Many credit card companies apply your payments to your purchases first until you have a zero balance before crediting anything to the cash advance, so you continue to accumulate interest on the cash advance at the higher rate indefinitely.
27 : Late payments are costly. If you pay your credit card bill even one day late, not only will you be slapped with a late pay- ment fee of $25 to $39, but your interest rate will be jacked up too. Mark your credit card payment due dates on your calendar or use whatever method works for you to ensure that you send your payment in early enough to be processed and credited to your account before the due date.
28 : The easiest way to make sure you pay off your credit card is to sign up for automatic payments. You can choose to have your minimum payment, the complete balance, or any other amount you would like drafted from your checking or savings account each month. This is a responsible way to pay your credit card bill because you have to plan ahead to have enough money in your account to cover the automatic draft. Talk to a customer service person at your bank if you have any questions.
29 : Every time you move, even if it’s tem- porary, notify your creditors immedi- ately of your change of address.If bills take longer to get to you or don’t get to you at all because your address is incorrect, you’ll incur late fees and possi- ble penalties. Even though the post office will for- ward your mail for a limited time period, it may be delayed enough to make you miss your due date and incur a fee.
30 : Every time you apply for credit, a notation is made in your credit report. Lenders frown on multiple credit applications because people with multiple credit cards are con- sidered a higher risk. Lenders may deny you credit or slap you with a higher interest rate when they see multiple credit applications in your credit history file.Ifyou’re shopping for a card with better terms, submit your applications within a thirty-day time- frame to avoid a black mark in your credit .
Good Luck :)