By Maura Attardi
Regional Director of Education, Money Management International
College students are the largest identifiable segment of first-time customers for credit card issuers. Competition for the college market is fierce and although it is illegal for credit issuers to post up on college campuses with t-shirts and cool freebies, young adults will no doubt experience their share of exposure to enticing credit card offers.
Becoming financially and credit savvy before going off to college will prepare you for the expensive college years ahead and will help you enter the workforce as debt-free as possible. When used wisely, credit cards can help you establish a respectable credit history, as well as serve as a valuable asset for future finance opportunities. However, when handled improperly, the resulting debt can become a terrible liability that can linger on past graduation.
The important thing to remember is if you don’t have any extra money in your budget to repay it within a reasonable time with interest, you can’t afford to incur the debt. With this in mind, it’s smart for first-time credit users to consider the following advice offered by Money Management International:
•Know your budget. How much of your monthly income will go toward paying credit card bills? Monthly debt payments should not exceed 20 percent of your monthly take-home pay or monthly allowance.
•Know your options. Look for cards with low interest rates, little or no annual fee, and a reasonable “grace period” to allow “free time” before finance charges begin.
•Know the risks involved. What would happen if you defaulted on the credit card agreement? Just a few late or short payments could have a huge affect on your interest rate and credit file. Once blemished, a good credit record is difficult to rebuild.
•Know your limits. Just because you have a $1000 or $2000 credit limit does not mean you can afford to carry that high of a balance. Keep in mind that most minimum payments average four percent of the total balance owed.
•Pay Your Bills on Time. One of the best things you can do to establish or improve your credit is to pay your bills on time. This isn’t limited to just your credit card bills or student loans, but also means your rent, utilities, and phone bills.
•Read the fine print. Before you sign any agreements, be sure that your interest rate won’t skyrocket in six months, and be sure that any “rewards” you get aren’t outweighed by hefty interest rates.
And remember, credit cards are not new money, free money, or more money. They are just loans that you have to pay back! For additional tips on creating your budget and managing credit, visit MoneyManagement.org/NFL
About Money Management International
Money Management International (MMI) is a nonprofit, full-service credit-counseling agency, providing confidential financial guidance, financial education, counseling and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan and repay debts. Counseling is available by appointment in branch offices and 24/7 by telephone and Internet. Services are available in English or Spanish. To learn more, call 866-531-0511 or visit www.moneymanagement.org.