|Swiper beware: Plastic purchases could lead to debt|
|Written by Renee Changnon, Daily Vidette Senior Staff|
|Sunday, 20 March 2011 18:50|
For college students with little cash on hand, a credit card may seem like a savior. That plastic money can add up however, and if a student isn’t careful, credit card debt may arise.
According to David Hill, credit counseling coordinator for Chestnut Credit Counseling Services, having and using a credit card is important for the future.
“I think most college students are going to get an opportunity very quickly to get a credit card,” Hill said. “I think they should act upon that and get a credit card, because it is a very good opportunity for them to build credit in the future.”
While having a card is important to help build credit, Edgar Norton, professor of finance, suggested that students start out with one card for small purchases.
“The best way to build credit is to start off with one credit card and use it for convenience purchases – gas, Wal-Mart shopping, and so on – and pay the bill in full each month,” Norton said.
Although some consumers may be able to follow this philosophy, others may have a problem with simply overspending with their credit card.
“Spending can be an addiction. Yes, credit cards do allow that addiction to continue on in lots of cases,” Hill said.
When signing up for a credit card, many breeze through the fine print in order to have the card come as fast as possible. Norton stresses that there are two areas one must be aware of when signing up for a card.
“Two common areas [people miss when signing up for a credit card] are knowing what the annual fees are on a card and knowing what the interest rate is – and when the card company can raise the rate,” Norton said.
Norton also advises students to look around for low-interest rate cards and also look to find no-fee cards. Sticking to one credit card is also another way to ensure all the bills can be paid in a timely manner, Hill explained.
“I strongly recommend looking at one card that is going to work in numerous locations whether it’s a MasterCard, Visa, [or] whether it’s a Discover card,” he said.
Another thing to avoid is applying to several retail store-specific credit cards, as their interest is typically higher. Hill also recommended paying bills on time to avoid late charges.
While it may be tempting to pay the “minimum payment due,” Norton advised against it.
“A trap some fall into is to make a timely payment on the minimum payment due. This is a great way to help the credit card company make a lot of money off of you as you’ll find yourself paying high interest charges over time,” Norton said.
If one hasn’t been as timely with their payments, and the amount due starts to get out of hand, Norton suggests a few simple ideas to stop the credit from building as well as dealing with the payments.
“[The] first step is to do something to make the credit cards inaccessible. I’ve heard of people putting their credit card in a food container, filling it with water, and freezing it until they clean up their credit record,” Norton said.
Once the card is out of reach, Norton also suggests starting to pay with cash to remove the temptation to charge a purchase, and this often takes budgeting.
By creating a stable future establishing good credit early on can help students in many future plans, whether they are applying to sign a new lease on an apartment or even applying for a new job, Hill explained.
“That credit you’re building now you’re going to be using for many years to come, whether it’s to attain additional credit, whether it’s to obtain housing, whether it’s to obtain employment in a lot of cases – there are just lots and lots of reasons to be paying that bill on time,” Hill said.
For students who have found themselves in a deep whole with their credit card debt, Hill recommends finding a credible credit-counseling agency.
“I would recommend they contact a credit-counseling agency, and I would recommend that they investigate that credit-counseling agency to make sure they’re reputable,” Hill said.
Both Norton and Hill agree, if the offer sounds too good to be true it probably is – as a catch is sure to follow.
“If you find yourself with your back against the wall – late payments and creditors contacting you – you may need to contact a credit counseling service. I strongly suggest staying away from the ones that advertise on TV or that place web ads,” Norton said. “Go to a non-profit counseling firm that can work with you and your creditors to arrange a payment plan.”