Saturday, July 13, 2013, AM | 1 Comment
Now that new graduates are entering the job market and probably living by themselves, it’s a good time as ever to talk about how they should handle their credit card debt responsibly. This post should relate to the new graduates as well as students still in college.
Here’s a typical situation of an average college student: In addition to supporting their tuition fees and books, students are given one credit card by their parents who sometimes don’t put any condition to use the card responsibly.
Credit card use by students and new graduates…
The following is based on multiple research done in recent years:
Over 30% of students use credit cards, according to one research that said the figures are based on very conservative basis. In reality, it could be a lot more.
Students strapped with high credit card debt have a more difficult time repaying student loans and have an increased probability of default.
Debt problems can cause depression in students, and that affects study habits and academic performance. However, students have not been known to lessen the use of credit cards. On the contrary, I think depression can cause them use the plastic more recklessly.
Even though time and again research has shown that parents must sit down with college-bound kids and discuss with them how they must behave as far as using their credit card, many parents still don’t do it.
Students, like many other folks, rack up huge amounts of debt without thinking how they’re going to pay it back. That’s a problem in the rest of the society as well.
Because of high interest rate, many families will pay about the same amount in interest on credit cards as they spend for food. That’s more food for thought. That can stop you think alright about your debt problem but the irony is it can’t stop you from using credit card needlessly.
Time to apply for job…
When students graduate, they obviously have to apply for a job. Many such graduates start to live by themselves as well.
Here is the problem unbeknownst to many graduates. Many more employers and landlords are checking the credit reports of job candidates and new tenants. That means the cleaner the credit, the better chances you’ll have to get a job.
Here are 6 tips for handling credit card wisely by new graduates.
Purchasing with credit card gets you in debt by default
Keep this in mind. Always remember that credit is a loan. It’s real money that you must repay. Before you apply for or your parents give you your first card, decide what the card will be used for – emergencies only or school supplies or cafeteria or pizza from a private establishment? – and determine how the monthly bills will be paid.
Be patient and go slowly
Take one step at a time. Get one card with a low limit and use it responsibly before you even consider getting another one. As long as you stay in school, one credit card is sufficient. Once you graduate, you’re on your own. Your parents might not want to help you any more and why should they?
Shop around for the best deal
Study your card agreement closely, and always read the fine print flyers enclosed with every bill. Credit card offers vary substantially, and the issuer usually can change the terms at will with 15 days notice.
Try to pay off your total balance each month
Just paying the minimum is a trap: If you pay off a $1,000 debt on an 18 percent card by just sending in the minimum each month, it will take more than 12 years to repay. If you can’t pay in full, pay a lot more than the minimum – at least half of the total – each month so you pay off the debt quicker.
Always pay on time
If you miss a payment in any month, it’ll place a black mark on your credit record and you’ll be responsible for it – no one else. It will likely cause the issuer to raise your interest rate to the maximum and who knows what the maximum can be. Try hard to avoid letting the issuer bump up the interest rate on your card.
Set a budget, follow it faithfully
Setting a budget is easy. Following it diligently and consistently is hard. Watch how much you’re paying on your credit card. Get a load of this statement: “A good rule of thumb is to keep your debt payments less than 10 percent of your net income after taxes.” So if you take home $1,000 a month, spend no more than $100 a month on your credit card.
Many students historically have been known to spend more…
It’s pretty obvious that many people in general and students and new graduates in particular just aren’t good at managing their money. That’s why it’s so important for you to learn how to save and spend wisely right now.
By developing good money management skills, you can make your own future secure and get everything you want out of life in a planned way.
In a Nutshell
Getting your first credit card may not be hard. Following its rules is hard. Read the fine print. Find out what interest rate you’ll be paying in case you’re unable to pay the full amount before the due date every month.