Most Americans get their first credit card in college. This new experience can be tough to navigate. For most college-strapped students, credit cards can feel like free money. And that attitude lands them quickly in debt. To avoid that pitfall, read up on these four tips that help you keep track of your credit card spending. You can get more credit card advice via We Know Money.
Know how much you can afford to pay back: Sit down and write down your income every month. Include what you get from your family, from submitting to experiments at the psych department, your job…everything. Add that all together and write that number at the top of the page.
Next, write down all of your mandatory expenses for the month. That includes your phone bill, groceries, rent, books, cable bill, etc. Add those up and subtract them from your income.
The amount that you have leftover is your amount of discretional income. This is the money you can use to drink, go to the movies, date and use to pay back your credit card. The last discretional expense is the most important. Your first credit card can feel like free money. It’s not. Keeping track of the amount of money you have to pay back your credit card may help you limit your spending.
Spend wisely. Credit cards aren’t cash and they shouldn’t be used like it. Credit cards should be saved for expenses that you couldn’t afford without it. It’s tempting to whip out your credit card every time you go out to eat or on a weekend shopping trip. But that’s just not smart thinking.
For every dollar you spend on a credit card, the credit company charges you a percentage called an interest rate. And for college students, those interest rates are often high. A 15% APR means that that $100 shopping trip really costs $115. Don’t pay it off immediately and that same stuff costs you $200 5 months later. Using cash when you can will save you lots of money in the long term.
Only use credit for large, necessary purchases that you can pay off quickly. Furniture and other investment pieces are great candidates for credit. Don’t extend your ability to pay it back quickly and you’ll build your credit steadily.
Pay more than the minimum: Sure the credit card company says that it’s all you have to pay. In fact, that’s what they want you to pay. When you just cover the minimum on your credit card payments, you’re only covering the interest rate. That’s the fee that the bank charges you every month for the privilege of borrowing their money. While you’re busy paying the bank’s fee, your principal remains untouched. You can pay that fee for years without making a dent in the principal.
To help keep track of your principle — the amount of money you actually borrowed — and your interest payments — the free money the credit company makes off of you — keep monthly track of your principal in one column and your interest in the other. Over a year, paying a $20 minimum means $240 extra dollars for the bank and adds $240 to whatever you already owe. A $500 credit card advance can easily balloon to $1,000 if you’re not careful.
Shop around: When you were a Freshman with no credit history, the credit card company made the terms. for most first-time credit card users, their options are high interest rate or no credit card at all. But the more you use your credit card, the higher your credit score gets. For your first year, focus on making purchases with your credit card that you can pay off each month. You’ll end the year with a high enough credit score to shop around for a better deal.
Do your research and look for the lowest interest rate you qualify for and low to no annual fees. While you’re shopping, be sure to read the fine print. Often credit card companies change their interest rates after the first year, when your balance is high or for any number of reasons. Make sure you know what you’re getting into before you sign.
Once you find a better deal, keep your credit availability low. Just because someone is willing to give you a credit card worth $5,000 doesn’t mean that you should take it. Stick to a balance that you can feasibly repay in a reasonable amount of time. High balances tempt you to overspend and leave interest-charging balances on your card.