Minimizing Credit Card Expenses/Maximizing Your Personal Wealth
Here are the key tips for managing a credit card. They will help you minimize your
expenses, limit your accumulated debt, and maximize your personal wealth.
Before you start using a card, decide what
it will be used for.
Remember that a credit card limit is not free money. It is a loan that you must repay.
Start slowly with one card with a low limit, and use it responsibly. Starting small will help you establish a credit history and keep you from
getting into excessive debt. If a credit card company raises your limit, you may request
that the limit be lowered.
Read the fine print!! Make sure that
the card you sign up for is what you think it is. For example, what is the interest rate
after the expiration of the introductory rate? Does the card have a grace period and an
annual fee? When will fees be charged, and how much? Which balance computation method is
used. (Average Daily Balance Method is most common; Adjusted Balance Method is usually the
most advantageous for card holders). Shop around for the best card for your
Always pay on time. Mail your check at least a week in advance of the due date.
Try to pay off your total balance each month. Credit cards are an excellent convenience tool;
however, they can be extremely costly if a balance is carried. If you always pay off your
balance, you will not get into serious credit card trouble.
If you already have significant credit card debt that you cannot payoff immediately, pay more than the minimum payment. If you only pay the minimum, your debt will take years to
repay. If you have multiple cards, pay off cards with the highest interest rates first.
Avoid having multiple credit cards including
retail cards. A few cards are fine, and they will help you establish a credit history.
However, too many open credit lines, even if they have zero balances, would be considered
a negative mark on your credit report. Lenders do not like it when you have the ability to
quickly incur significant debt. Some experts recommend that total credit lines be limited
to no more than 20% of your annual income. Resist the urge to acquire that "free
t-shirt" by opening another credit card.
Make sure that you cancel
unnecessary/unused credit cards. Do not
just cut them up. Credit cards will show as open lines of credit on your credit report
until you cancel them. Tell the creditor to reflect "account closed by consumer"
on the credit report.
If for some reason, you will be late with your payment, call the issuer and let
them know--ahead of time if possible. The issuer may be willing to make alternate payment
arrangements that wont leave a mark on your credit report, particularly if you have
a good payment history. It is also a good idea to be aware of your due dates so that you
can plan your payments.
Keep in touch: If you change your
name or address, notify your lending institution immediately. Your payment could turn into
a late payment in the time it takes for a statement to be forwarded to your new address.
Keep copies of sales slips and compare charges when bills arrive. Examine your bill, including changes in terms, which may be slipped in with
your monthly statement. Interest rates and fees may be changed with only 15 days advance
If you have a billing error, put it in
writing!! A telephone call will not
protect your rights. If you find a mistake on your bill, you can dispute the charge and
withhold payment on that amount while the charge is being investigated. The error might be
a charge for the wrong amount, for something you didnt purchase, or for an item that
was not delivered as agreed. You still have to pay any part of the bill that is not in
dispute, including finance and other charges. Write to the creditor at the address
indicated on your statement for "billing inquiries." Include your name, address,
account number, and a description of the error. Your letter must reach the creditor within
60 days after the first bill containing the error was mailed to you.
Remember that interest rates can be negotiated with the credit card issuer. If you feel that your interest
rate is too high, it does not hurt to ask the company to lower the interest rate.
Do not let a friend use your credit card. If your friend is unable to pay the bill, you will be responsible for payment.
Create a budget. The American Express
and Mastercard websites have helpful budget calculators for students. Another useful tool
that may be used in conjunction with a budget is a credit card recorder in which you
document your credit purchases. By using a credit card recorder, your monthly bill will
not be a surprise. If you have difficulty staying within your household budget, consider
paying by cash, check, or debit card, instead of using a credit card.
Start a savings account! It is a good
idea to deposit a set amount into your savings account on a regular basis. A good rule of
thumb is to save 5% to 10% of your income; however, even just $5 or $10 on a regular basis
will help. Once you have a savings cushion, you wont have to turn to a credit card
every time an unexpected expense pops up. A savings account is a key part of a full,
healthy financial picture. Starting today is better than starting tomorrow. And starting
this year is most definitely better than starting next year.
What Many People Do Not Know About Credit Cards
The following items are not widely known. In fact, you may want to share these tips
with your parents!
If your credit card uses different rates for purchases, transfers, and
cash advances, realize that the card issuer may pay the lower interest rate balance first.
Consequently, if you carry a balance, your high-rate cash advance may not be
"paid" until all lower-rate balances are paid in full.
Fixed-Rate credit cards are not fixed forever. Rates can be changed at any
time, as long as the card issuer provides 15 days advance notice of the change in terms.
Fees may also increase. These "Change in Terms" notices are usually included
with your monthly statement.
Your interest rate may dramatically increase if you make late payments.
For example, some issuers will raise your interest rate to the maximum after one or two
late payments. Consequently, your 12% credit card could quickly turn into a 25% credit
Your credit card issuer may also raise your interest rate after conducting a routine
credit report review. If your overall credit history has deteriorated, the
issuer may raise your interest rate, even though youve never made a late payment on
the card in question.
The 25 day grace period only applies when you pay-off your entire balance
due each month. If you only pay the minimum payment, interest is immediately accrued from
the moment you charge something to your credit card. Some companies are also shortening
the grace period to 20 days, and some cards have no grace periods.
Ignore offers to reduce or skip payments. These options are frequently offered
over the holidays. When you skip a payment, the loan continues to accrue interest;
therefore, these offers simply increase the overall interest and finance charges that the
creditor collects. On a similar note, beware of offers of no payment/no interest for a
period of time. Furniture stores, jewelry stores, and electronics stores frequently offer
these programs. For example, no payment/no interest for 12 months!! This can be a
good offer, but once again, read the fine print. Make sure you know the details of the
program. Generally, you need to pay off the entire balance before the end of the
"free" period to receive the benefit. Otherwise, you will probably have to pay
interest on the entire balance from the date of your purchase.
Credit Reports and Building a Strong Credit History
A credit report is similar to high school and college grade transcripts. Just like poor
grades can negatively affect your career and academic options, a poor credit history can
have far-reaching negative consequences.
Tips for Building a Sound Credit History
Keep your own checking account and savings account. Do not overdraw your account.
Establish a credit card in your own name, and use it responsibly.
Pay bills before the due date.
Limit the number of credit cards you own. Too much open credit, even if the accounts
have zero balances, will negatively affect your credit score.
Close unused accountsdo not just cut the cards upor the account will still
show as an open line of credit on your credit report. Ask the issuer to state on your
credit report, "account closed by consumer."
Limit the number of credit inquiries. Every time you apply for credit, it shows as an
inquiry to your credit report. Too many inquiries are viewed negatively by lenders.
A large number of recently established credit accounts may hurt your ability to be
Periodically obtain a copy of your credit report to verify that information reported is
accurate and to look for ways that you can improve your credit.
How to Order a Credit Report
You may order your credit reports from the three major credit reporting agencies. (A
list is included in the Resources handout.) In order to see your entire credit history,
you should review the records from each of the agencies. You will generally be charged a
fee for each credit report. This fee varies by state, but it is generally $8.00. You are
also entitled to a free copy of your credit report within 60 days after being turned down
for credit, employment, or insurance because of information supplied by a credit reporting
agency. When you get your credit report:
Check that all your personal and credit information is correct.
Report any errors in writing to the appropriate credit reporting agencies and follow up
with them to be certain corrections are made.
If you have unresolved disputes with the credit reporting agency, you may submit a
written statement that will be included with your credit report.
Signs of Trouble
Hopefully none of you are in credit card trouble, but here are a few signs to look out
Feelings of anxiety, sleeplessness, or worrying about bills.
Late, incomplete, or missing payments.
Using credit to pay basic expenses (such as rent) because your expenses exceed your
Taking cash advances for basic expenses.
Using one credit line to pay for another credit payment.
Getting reminder notices or phone calls from creditors.
If in Trouble, Take the Following Steps
Stop using credit to add to existing debt.
Cut back on spending.
Make a plan to meet credit bills. For help making a plan, call one of the reliable
non-profit credit counseling agencies. (See Resources Handout)
If your situation is difficult but still manageable, you may want to personally call
your creditors if you know you wont be able to make all payments by the due dates.
Some creditors may be willing to arrange a repayment plan that you can manage. If you are
working with a credit counseling agency, talk with the agency first.
If you are having trouble with your personal debt levels, considering seeking help.
Keep the following items in mind when seeking assistance.
Your college may provide credit counseling.
Obtain assistance from a reliable non-profit credit counseling agency, such as Debt
Counselors of America (DCA) or Consumer Credit Counseling Services. Many of their services
are free, although they may charge a small fee for certain assistance options. A reputable
non-profit counseling agency should be very open about their services, fees, and related
Beware of companies or services that promise they can fix credit reports quickly. They
can be fraudulent and expensive. Getting out of debt will take time, patience, and
Be cautious of debt consolidation plans. (A debt consolidation plan allows you to make
just one payment to the consolidator, instead of numerous smaller payments to your many
creditors.) These plans are not always the best option for your overall financial health.
The consolidators may promise to lower your monthly payments; however, this action will
extend the length of time it will take to pay off all your debts and ultimately you may
pay more in finance charges. Make sure that you are with a reputable credit counseling
agency before you enter into any debt consolidation plans.
The use of debt counseling may appear on your credit report. Some creditors consider
this activity negatively; some may consider it as a positive step.
additional information, refer to Federal Trade Commission Publication, "Fiscal
Fitness: Choosing a Credit Counselor."