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Credit Cards – Easy Does It

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It's not that having a credit card is a bad idea. In fact, having one card with a low balance, that you make regular payments on, can help establish a good credit history and serve as a great resource for emergencies. The trick is knowing when to use your credit card and when to pay cash. The answer is almost always... if you can't pay cash, don't buy it. Reserve your credit card for times when a retailer won't accept anything else-such as for travel arrangements - or in absolute emergencies.

Read the Fine Print

Credit cards might all look alike, but behind the plastic they can be vastly different, with varying terms and conditions. It's worth your time to read the fine print and find one that will cost you as little as possible. Look for things such as:

• Low, fixed annual percentage rate (APR) - 0% is only an "introductory rate!" Most rates will rise, sometimes dramatically after the introductory period
• Reasonable grace period
• No annual fee
• No or minimal penalty fees

The Inside Scoop

Photo:DEANNE LEDEBUHR @ 2008

The financial freedom-not to mention the free gifts-that come with credit cards are so attractive that it's easy to overlook the not-so-obvious conditions you might be agreeing to when you sign up. Almost all credit cards carry fees and risky features that can add up pretty quickly if you're not careful. Be aware of these standard elements of most credit accounts:

• Additional transaction fees: Charging beyond your credit limit usually incurs a fee of $20 or more.


• Cash advance fees: In addition to the set interest rate, the cash advance fee is usually a percentage of the amount borrowed per transaction, or a minimum dollar amount.


• Balance transfer fees: Transferring a balance from one credit card to another can also trigger an extra charge and/or a different interest rate.


• Increased interest rates: With some cards, making one or two late payments - as little as one day late - in a specified period of time can permanently increase your interest rate to well over 20 percent.


• Low minimum monthly payments: This feature may look like a benefit, but in the long run it costs you a lot more than you need to pay. The best approach is to pay your account off every month, or at least make more than the minimum payment.


• Free offers: Often in the form of frequent flyer miles, product discounts, or a free gift, these benefits are not worth the interest you end up paying on other purchases.

Think Before You Sign

Remember-once you have your first credit card, it gets easier and easier to become a "collector." As offers for pre-approved cards come in the mail, many students can't resist the opportunity to increase their buying power, not realizing that they are also increasing their debt load. Study after study has shown that people with more credit cards end up with higher debt and have more difficulty paying beyond their minimum monthly payment.

You can stop the barrage of offers in your mailbox-simply call (888)5-OPTOUT to remove your name from the pre-screening lists used by the three major credit bureaus.

There's Help When You Need It

If you find yourself having problems managing your credit card(s) or deeper in debt than you'd like to be, help is available with a simple phone call. You can locate a free or inexpensive credit counselor near you by calling (800)388-2227 for help and advice on taking control of your financial future.

Know the Lingo

• Annual Fee: A flat, yearly charge, usually $25 to $50.


• Annual Percentage Rate: A measure of the cost of credit expressed as a yearly rate.


• Cash Advance: An immediate cash loan from your credit card account. May carry a higher APR than other purchases.¹


• Credit Limit: The maximum, cumulative amount of money you may borrow on your credit card.²


• Finance Charge: The dollar amount you pay to use credit that includes interest costs and all charges associated with the transaction.


• Grace Period: The number of days you have before interest is charged on new purchases. When carrying a monthly balance, most credit cards do not offer a grace period.


• Transaction Fees: A charge incurred for a cash advance, late payment, or exceeding your credit limit.

*¹ & ²: From www.truthaboutcredit.org

In the chart below, you've charged $100 a week for a year. Even though you stopped using the card completely after the first year, it takes 19 years of making minimum monthly payments to pay off one year of "fun."