falling into too much
credit card debt, a trap that
college students and tens of
millions of other
americans fall into, ruins
your credit rating and your
finances for a long, long
time.
the first part of this article
illustrated how a charging
a $200 cell phone can
easily end up costing you
over $1,000. to help you
avoid that and other credit
card trouble, here are some
tips from consumers
union, the nonprofit publisher
of consumer
reports.
credit card companies
like to entice you with all
sorts of offers. “What
often begins as ‘easy credit’
can end up being a credit
trap that’s difficult to
escape,” according to
consumers union.
consumers union suggests
asking “Do I really
need a credit card?” If the
answer is “yes,” then your
next step is to determine
whether you can afford to
get 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.”
avoid getting a credit
card with too high a credit
limit or one that provides
for automatic increases in
your limit. a high credit
limit might tempt you into
making purchases that you
really don’t need, says
consumers union, an easy
way to get into credit trou
ble.
What should you use your
credit card for?
consumers union advises:
“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.”
If you use your credit
card judiciously and pay
off your balance in time
every month, using your
credit card can be a good
way to build that good
credit rating that will be
important later in life when
you need to apply for
things like a car loan or a
mortgage. Misuse your
credit card and you could
be paying for your mistakes
for years and years to
come.
the consumers union
advises that you shop carefully.
When you are looking
for a credit card, look
for a card with a low
annual Percentage rate
(aPr). the higher the
aPr, the higher the cost of
credit.
along with the aPr,
make sure that you that
you check out the card’s
default interest rate. this
is the rate that you get
charged if you miss or
make a late payment. Not
only will your credit card
company charge you a late
payment fee of around $39
for a single late payment,
“be prepared to see your
interest rate double or, in
some cases, triple,” warns
consumers union.
there are other credit
card traps that you
should be aware of.
read the card’s
“change of terms” provision.
Many credit
card companies
reserve the right to
change any of the
terms of the credit
card agreement at any
time, including
increasing your interest
rate or late payment
fees.
also be wary of “universal
default” provisions.
these provisions
allow the credit card company
to raise your interest
rate they find out that you
have been late in paying
other creditors, even if you
have a perfect credit history
with the credit card
company.
once you have a credit
card, pay off your monthly
balance. If you can’t do
that, at least pay more than
the monthly minimum payment
to ensure that you get
ahead of the credit card
company and not behind.
Don’t fall into the minimum
monthly payment
trap that credit card companies
set for you. Paying
the monthly minimum will
not reduce either the
unpaid balance or the
amount of next month’s
payment.
Paying the monthly minimum
only insures that your
credit card bill will keep
getting bigger and bigger.
as discussed in Part 1, you
could end up paying $1000
for that $200 android that
you just had to have.
consumers union stresses
that “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 has one
more important tip. “If you
get into credit card trouble,
get help.” It suggests that
you contact a consumer
counseling agency to get
advice and recommends a
website, www.nfcc.org, for
information on consumer
credit counseling.
this article and its prior
companion are intended to
help you keep more money
in your wallet. Watch out
for next week’s article,
which will discuss low-cost
ways to finance your college
education. consumers
union information can be
obtained through
www.ConsumerReports.org