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Following are articles that have appeared in our newsletter or other publications.
Credit Cards - How to Avoid the Pitfalls
According to a nationwide study (Undergraduate Students and Credit Cards An Analysis of Usage and Trends, April 2002) conducted by the student loan provider Nellie Mae, in the year 2000:
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83% of undergraduate students owned credit cards
47% owned four or more credit cards
21% had credit card debt balances between $3,000 and $7,000 |
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YES, credit cards do have their advantages: they can be helpful in emergency situations; they allow you to shop without having to carry large sums of cash; they make it possible to purchase larger items; and if used wisely, they can help you establish a good credit record. However, because you can easily make impulse purchases and spend more than you can afford, credit cards can send you down a slippery slope leading to credit card debt and a poor credit rating. Here are some tips to help you avoid the trappings of owning a credit card:
- Keep track of your purchases and pay off your balance each month. If you don't do this, you can easily "max out" your credit card (spend up to your credit limit) and you will pay interest on the unpaid balance. Wondering how 21% of students could have credit card debt levels between $3,000 and $7,000 even though credit cards for students usually have credit limits between $500 and $1,500? They most likely maxed out one credit card, then applied for new cards, which they also maxed out.
- If you can't pay off the balance each month, at least pay as much as you can afford beyond the minimum balance due. Even if it's only $10 more than the minimum, it will have an impact.
- Be sure to pay your bills on time to avoid finance charges.
- Shop around to find the best deal - rates and terms can vary quite a bit. Don't be drawn in by companies that offer promotions such as a free t-shirt or a hat if you sign up right away; it's their way of getting you to sign up impulsively.
- Avoid cards that carry annual fees, if possible.
Credit Card Safety
by Mike Kelly
Reprinted with Permission from the
University of Michigan Credit Union
It is vital that consumers remember that credit is a privilege and once you have established yourself as a good credit risk, you should protect your record and your name through careful management of your financial accounts. Always be aware of the status of your accounts, read your statements thoroughly, and remember that credit card companies work for you! Be ready to hire a new company if you aren't satisfied.
- Make a list of your current credit cards with account numbers, interest rates, penalty fees, and customer service phone numbers. Keep it with your bills for quick reference. It will be easier to notice changes. With the information at your fingertips, you won't be tempted to put off questioning any change.
- Read and keep all of the "fine-print" materials provided from any existing or new credit cards. If you don't understand something, call the issuing company for clarification. Check to see if the company provides a toll-free phone number.
- If you don't like the terms on your current cards, shop around. There are plenty of credit cards out there and you may find one that better suits your needs.
- Beware of "pre-approved" credit card offers. First, most of these aren't really "pre-approved." People responding to these unsolicited offers often find themselves denied a card. Even those approved find that, while the letter promised a $5,000 limit at a 6.9% interest rate, the card turned out to be for a limit of $500 at a 19% interest rate. If this happens, cut up the card before using it and call the company to close the account.
- Carrying a balance on your credit card can be costly. Increase your monthly payment as much as possible and avoid paying only the minimum. Even if you can only pay ten dollars more than the minimum, it will make a big difference.
- If the company offers to let you skip a payment, don't do it. They aren't being nice to you. They're trying to make more money. This tactic is often aimed at consumers who usually pay their balance in full. The company hopes the consumer will learn to carry a balance. In addition, you'll receive a finance charge on the balance.
- If you can't avoid a finance charge by paying the card balance in full (the only way to stay out of debt), still try to pay your bills before they are due. Most finance charges are based on the average daily balance so the sooner you make your payment, the lower the finance charge.
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