To Charge, or Not to Charge

As you prepare to head off to college, you'll be making a lot of big decisions: which classes to take, choosing roommates, where to live, whether you should get a job while at school, and many others.

Perhaps one of the biggest decisions you'll make is whether or not to apply for a credit card (or cards, as the case may be). Now, before your eyes glaze over and you pass this off as just another boring article, I ask that you humor me and take five minutes to read this (if for no other reason than it will be good practice for those English classes).

WELCOME TO THE WORLD OF INDEPENDENCE
The beginning of college signifies the beginning of independence for most students. You're living on your own for the first time and making a lot of your own choices. The last thing you want to do is get yourself into such a financial bind that you're forced to move back in with your parents; most college students can't pay off consumer debt and still afford an apartment and a car.

According to the Center for Economic and Policy Research, approximately two thirds of all college students use loans to pay for college. The average student has loan balances of $15,500 after four years in a public school and $24,600 in a private school. That's a lot of money to have to pay back with the income from your first job after college. Throw in mounting credit card balances, and you have a recipe for disaster.

Does this mean you shouldn't have a credit card? Not necessarily, but a little forethought before you apply for a card can save you a whole lot of trouble on the back end.

HANDLE WITH CARE
An important thing you need to understand right off the bat is that you are going to be bombarded with incentives to apply for credit cards. The credit card companies have been at this game since way back when I was in college. (Yes, that was a long time ago; thank you for asking.) They play this game very well: They'll give you free stuff just for applying for a credit card, such as T-shirts, duffle bags, book bags and gift cards are not uncommon lures to get people to sign up.

Getting a credit card is the easy part. Understanding how they work and managing your expenses on the card are more difficult. First, determine what expenses will be placed on the credit card. Having a credit card for emergency expenses is a good idea. For example, if you have a car on campus, you might have some unexpected repairs that need to be made. Having the ability to pay for the repairs and not be left stranded can bring you and your parents some peace of mind. Another scenario where a credit card may come in handy is in making travel arrangements to get back and forth between home and school. However, many students will find it all too easy to place other items on the card, as well. Clothing, concert tickets, food, etc. all can be paid for using a credit card.

Whatever your intentions are for making purchases on the credit card, understanding how credit works can be of great value to you and your credit rating. Most credit cards will start out with a minimum credit limit. The credit limit is simply the amount the credit card company will allow you to charge on the card. Credit limits will vary based on your current credit rating and ability to pay. Typical credit limits for college students will start out in the $1,000-$2,500 range.

In addition, most credit cards do not require that you pay off the balance every month. They will allow you to carry the balance and make minimum monthly payments. If you don't pay off the entire balance, the remaining amount will be charged a finance charge. That finance charge will be charged on the balance every month until it is paid off. This, my friend, is where consumers get into trouble.

The problem with making the minimum payment on the credit card is that many times the minimum payment is barely enough to cover the finance charge. This means you literally can take years to pay off the balance on your card. Do you really want to be 30 years old and still be paying for the pizza you ordered your junior year in college during one of your all-night study sessions?

In addition, just about all credit cards will charge a late fee for payments not received by the posted due date. Not only will these late fees be added to your account balance and incur the finance charge, but continually making late payments can increase the finance charge the credit card company hits you with on your unpaid balance. This can hurt your credit rating for years to come.

MAKING IT WORK FOR YOU
If you are going to get a credit card, following these simple suggestions can help you avoid the traps they can pose.

• Apply for a credit card that has a low ongoing annual percentage rate rather than a card that has a low introductory APR and a muchhigher APR after the introductory period.

• Avoid cards that have annual fees.

• Pay off the balance on the card.every month.

• If you can't pay the entire balance, pay more than the minimum payment.

• Don't use the card to increase your standard of living.

College is a great time to explore your newfound freedoms. Making wise financial decisions is a part of your growing independence and responsibilities. Don't let foolish credit card use now haunt you for years to come.