Using credit cards to finance part of your college education can be costly. Students who don't understand the basics about credit may get into financial trouble before they know it. Keep in mind that credit cards, personal and student loans, and other debt payments should account for no more than 15 to 20 percent of your income.
Here are the basics you should know before you make your next credit card purchase:
Select the right card
Before you apply for a credit card, shop around. Today the options are many, and finding a card that fits your needs is easy. Bankrate.com is one online tool that will compare cards for you.
Opt out of pre-approved offers
You can stop the barrage of offers in your mailbox by simply calling 888.5.OPTOUT to remove your name and address from the prescreening lists used by the three major credit bureaus -- Transunion, Experian and Equifax.
Do the math
You probably don't think about the total repayment when you're standing in line to make a purchase using your credit card, but chances are if you only make the minimum monthly payment on your statement, it will take you a long time to pay off those charges. Here's why:
If you charge $1,000 for tuition and $400 for books and supplies for one college term on your new credit card, you will owe a balance of $1,400, including an average interest rate of 18 percent. If you make the minimum monthly payment of approximately $28 (standard 2%), it will take you 93 months to pay off that debt -- nearly eight years. In addition, you will have paid $1,207 in interest charges, brining your total to $2,607.
Because credit cards are convenient to use, it's important to keep your spending under control:
- Know your credit limit - the highest amount you can charge on your credit card. Exceeding your limit may result in over-limit fees as high as $29.
- Limit card use and allow yourself only one low-interest-rate card. The interest rate is what the bank charges a customer for borrowing money. Use an alternative like cash or checks.
- Know the grace period - the interest-free period of time for making purchases. Most grace periods average between 20 to 25 days, meaning you'll pay for purchases more often. If you pay your bill in full and on time, you will not incur interest on your purchases.
Terms and conditions
The fine print commonly referred to as "terms and conditions" generally accompanies credit card offers and/ or your monthly statement. Terms and conditions disclose the annual percentage rate (APR), minimum finance charge, transaction and other fees, grace period and other important information. Here's an example:
Taking out a $20 ATM cash advance may be costing you a 25% fee. Buried in the fine print may be a statement reading cash advances carry a 3% fee but will charge you no less than $5. That means you pay $25 for a $20 transaction, not to mention any ATM fees you might have incurred.
The fine print is especially important when considering an introductory credit card offer with special rates and fees. Introductory terms and conditions are for a limited time and may change even during the introductory period.
Also be aware of other fees or charges. Typically your credit card terms will specify fees for balance transfers, overdraft protection, late payments, or over-limit charges. In addition, look for annual membership or award program fees charged to maintain the account or for special services. These fees vary and can add up over the course of a year.
Make timely payments
Making on-time payments is important to avoid late payment fees -- fees incurred by not paying at least the minimum payment by the due date on your statement. The average fee can cost $29 or more in some cases. To prevent these types of charges, make:
- Early payments: Send your payment early. The payment date is when your payment should be received not when you should mail it.
- Online payments: Many creditors offer this service free of charge.
- Automatic payments: Have monthly payments deducted directly from your personal checking account on a designated day.