What you should know about credit cards
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Credit card companies are very eager to get your business and will offer incentives to get you to sign up. Don't get a card just because the company is handing out free goodies like tee shirts and Frisbees. Different cards have different fees, terms, and interest rates. You should shop around for the right credit card with the best deal for you.
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Don’t get a credit card based on looks. Many creditors offer design options that may appeal to you but at a high cost.
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Student cards often come with high interest rates since student default rates are typically higher and students haven't established extensive credit histories. Compare offers from different creditors and make sure you get the best deal available to you.
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Credit cards should not be thought of as an additional source of income. Use them responsibly to establish credit. You should try not to make purchases that you cannot pay off in a single month. Many students make small purchases that they plan to pay off quickly. However, their plans are often not realized and even really inexpensive items end up costing a lot by the time they are paid off.
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Cash advances have very high fees and rates. Avoid them unless absolutely necessary.
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10 questions to ask prior to opening a credit card
- What is the monthly minimum payment?
- When is the payment due date?
- What is the annual percentage rate (APR)?
- What is my credit limit?
- Is there a grace period on item purchases?
- What is the penalty for missed or late payments?
- Is there an annual fee?
- Is there a fee for late payments?
- Are there balance transfer or transaction fees?
- What are the benefits or rewards?
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5 questions to ask yourself before purchasing with your credit card
- Can I pay off the balance this month if I make this purchase?
- Do I really need this item?
- Can I wait to have this until I save up?
- Do I understand how much I will really pay for this item if I don't pay the balance immediately?
- Would I go to the bank and take out a loan to purchase this item?
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The Cost of Purchasing on Credit
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|
If you pay $30 per month
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If you pay $50 per month
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If you pay $100 per month
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|
Amt of Purchases
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Years to repay
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Interest charges
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Total cost of purchases
|
Years to repay
|
Interest charges
|
Total cost of purchases
|
Years to repay
|
Interest charges
|
Total cost of purchases
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| $500 |
1.7
|
$91
|
$591
|
11 mo
|
$52
|
$552
|
5.5
|
$26
|
$526
|
| $1,000 |
4.2
|
$478
|
$1,478
|
2.1
|
$229
|
$1,229
|
11 mo
|
$103
|
$1,103
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| $1,500 |
9.3
|
$1,801
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$3,302
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3.6
|
$604
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$2,104
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1.5
|
$242
|
$1,742
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| $2,000 |
Below minimum payment
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5.6
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$1,346
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$3,346
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2.1
|
$457
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$2,457
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| $2,500 |
Below minimum payment
|
9.3
|
$3,003
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$5,503
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2.8
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$769
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$3,269
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Assumptions: No annual fee for credit card; Late fees are not incurred; Interest rate: 20% compounded daily.
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Keeping your credit card safe
- DO report a lost or stolen credit card immediately
- DO regularly check your statements
- DON'T let anyone borrow your credit card
- DON'T leave your credit card lying around
- DON'T leave receipts for purchases you made with your credit card lying around
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Getting out of credit card debt
If you have already found yourself in credit card debt, you may want to consider the following to get out as soon as possible.
- Stop making purchases on your credit card.
- Pay more than the monthly minimum payment. Pay as much as you can afford because of high interest rates, even if it means making a few sacrifices.
- Send in payments as early as you can. Interest accrues on a daily basis.
- Understand how much you really owe.
- Don’t accept offers from your creditor to skip monthly payments.
- Refinance your debt on a card with a lower interest rate. Make sure to pay attention to balance transfer fees.
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Resources
National Foundation for Credit Counseling: www.nfcc.org
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