Beware of Credit Cards

Recent legislation has reduced the availability of credit cards by requiring students under 21 to have an adult co-signer or to have proof of independent income (Credit Card Accountability, Responsibility & Disclosure Act of 2009).

While credit cards can be useful in true emergencies (that unexpected textbook you need before payday, an unplanned trip home), the finance charges and fees on the borrowed money can cost more than the book or gas.

Responsible credit card behavior includes:

  • paying on time
  • paying off the balance each month
  • using only in true emergencies

Irresponsible credit card behavior includes:

  • throwing a pizza party for your dorm quad
  • shopping trip because you failed that physics quiz
  • just not sending in that month's payment

For example, you have a credit card that has a $2,000 credit limit at 14.50% APR (Annual Percentage Rate) that you max out on emergencies. Here is the math:

Balance $2,000
APR 14.5%
Estimated min. monthly payment $40.00
Years to payoff 14
Estimated total interest $2,070

This scenario is assuming that you make every payment for 14 years on time and don't incur a late fee that can be anywhere between $29.00 - $49.00 and that your interest rate doesn't increase for paying late.