Important Things Students Should Know About Credit Cards

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      The life of a college/university student can have many unexpected expenses. In many cases financial aid and other sources of income may not adequately cover the extra things that may pop up. You may find yourself looking at the prospect of getting your very first credit card. If you have a bank account you can sign up with your bank for one of their student credit cards; but before you venture off into the unknown, it is a good idea to know the basics first.

     A credit card is a loan or line of credit in a way. The card will have a certain amount that is available to you that can be used for payment virtually anywhere. This is especially useful if you like to purchase things online often. You can also take out cash advances with your credit card which is similar to you using your debit card to withdraw money. The card lets you pay for things with the promise that you will pay the money back, of course. The credit card companies don’t just wont the original money back, they also want interest to make a profit. Most credit cards that would be available to a student will more likely have an interest rate of at least 15%. This means that if you have a credit card with a balance of 100 dollars every month interest would be charged on your monthly payment. Most credit cards only require you to pay 2% of the balance that you owe on the credit card. Interest is also automatically added in most cases when you use the credit card for cash advances. The credit card will ask for payment every month with a grace period. If the balance is paid off entirely within the grace period no interest will be charged. Now that you know some basic information here are a few tips to make sure your credit card is more help than burden.

1. Take the lower limit when asked.

    In some cases you may get a choice of what type of limit you want on your credit card. Most people would agree that the higher option would be a no brainer, but the more you have the more trouble you can get into. If you have a choice of a 500 or a 1000 limit picking the 500 means that you can only get yourself 500 dollars in debt as opposed to the 1000. This tip is a method of self control and limiting the amount of damage you can do.

2. Only use the card where other forms of payment are not accepted.

    This tip will get you into the habit of recognizing that your credit card is just for special occasion most of the time. If you get into the habit of using it everywhere you may find yourself with a balance that is hard to pay off. The credit card is perfect for that EBay purchase or the online only deal that you can’t miss out on. If you find yourself in another country without the correct currency your credit card will have no problem. The convenience of a credit card is one of reasons it’s always good to have one.

3. Try to never hold a balance

    There will be times where you have to pay for the random car breakdown or you may have to break the credit card out to pay for those expensive books in university. In those cases it is very hard to avoid having a balance on the card. In other situations though think of your credit card as an extension of your actual bank account. If you only have 200 dollars in your bank account and you have a 500 credit limit; think of it as having a 200 dollar credit limit. This way if you use the credit card to pay for that new DVD player you got from eBay, you have the money to pay it back right away. The benefit of following this tip will always allow you to avoid paying interest which is how the credit card companies essentially make a profit.

4. If you must hold a balance then pay if off as soon as possible

     If you find yourself in a situation where you don’t have the funds to pay off the balance then don’t panic. At that point it is acceptable to pay the monthly payments. If at any time you have extra money available don’t hesitate to put that towards your credit balance, so you can pay if off as soon as possible. The longer you pay the monthly payment the more interest you incur. A simple 500 computer purchase can end up costing 1000 if you only pay the minimum monthly payments.

5. Stay informed

The most important thing you can do is empower yourself by talking to your bank about the credit card you are thinking of applying for. This article touches on some of the basics to owning and managing a credit card without incurring unnecessary debt. So don’t just take my word on this topic, find out for yourself.

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