Credit card companies are always in competition to be the first in your wallet. They know that if you are approved for their cards will be likely to keep them and use them. The key to managing credit is to avoid getting trapped in the mindset of “I’ll buy now and pay later.” When you do borrow, you should ask yourself how and when you will actually repay the debt and how much it will cost you in the end.
To be fair, credit is not all bad. In fact, establishing good credit can help you get a job, rent an apartment, get the best rates on auto insurance, avoid deposits on utilities or other services, or even buy a home in the future.
Too Little, Too Late
Being late on payments can have a number of costly consequences, which anyone would want to avoid and you may not be able to afford. Your interest rate on new purchases as well as any current balance may be raised to a very high rate if you are late. If you pay your debts late, a late payment will likely be reported to the major credit bureaus and will stay on your credit report for seven years. Consequently, your other credit card issuers may raise your interest rates if they see you are falling behind on other accounts. It is always a good idea to be proactive and call your issuers if you can’t make a monthly payment on time. Ask them about alternative payment arrangements that won’t damage your credit or raise your interest rate.
Shop around for the best interest rate when you are looking for a credit card. Consider using one card for balances that you will pay off right away and another card with a low interest rate for times when you need to carry a balance. Don’t pay interest on items you don’t really need, or for things that will be gone by the time you get your bill. Otherwise, it’s like buying the same item marked up instead of marked down. Read your credit card agreements carefully and any correspondence you receive from your issuers. There may be important information in them. For example, credit card issuers can generally change your interest rate with only 15 days written notice…“Yes!” …even on a card with a fixed rate. Most merchants and businesses offer the option of automatic payment debit. However, if you are using “snail mail”, you should mail your credit card payments at least 5 business days before the due date. Most credit card companies have steep late payment penalties.
It’s a Trap!
If you pay off a $1,000 debt on a card with an 18% interest rate, it will take you more than 12 years to repay. Shoot for keeping your debt payments at less than 10% of your income after taxes. If you take home $750 a month, spend no more than $75 a month on credit. Student loans can be a lifesaver when it comes to financing school. However, they can also quickly become a major burden if the payments are unmanageably high or if you have a hard time finding a job at your expected salary after graduation.
Graduate school can mean significantly more student loan debt if you have to borrow money to help pay for it. A great way to curtail this cost is by looking for a job with tuition benefits and attending graduate school while you work. You may be eligible to have part of your student loans forgiven or cancelled altogether if you work in certain industries such as teaching or healthcare in low-income areas, if you serve in the Peace Corps , and if you perform some form of military service. If you have a lot of student loan debt, take the time to explore these options before you graduate. Educate yourself by visiting the Department of Education at www.ed.gov for information on student loan cancellation and forgiveness. If you think you may have trouble paying back your student loans, consider options for flexible repayment plans, or postponing your payments. If you fall behind, you’ll have fewer options available to you, so be proactive.