College Time Tips

college 2It is that time of the year. Time for back to school, but now it is the start of a new chapter – college. Parents hope for a better life for their kids and it starts with helping after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.

Understanding the Different Types of Credit Cards

Women and Credit CardsWith credit card offers filling up mailboxes across the country, is it any wonder that people may be confused by what appears to be dozens of the same offer coming from different lenders. However, nearly every solicitation varies from the others in some big and small ways. Knowing what type of card you’re looking at is the first step in choosing one that best meets your needs. While there are a few major differences, some offers are combinations of these major themes; others have subtle differences that may affect what it costs to borrow. Here’s what you need to know.

Plain Vanilla Credit Cards

These are standard, run-of-the-mill cards that are generally thought of when credit cards are considered. Provided by nearly every bank, financial institution and many retailers and merchants, a standard card requires no collateral; however the cost of using one is dependent on an applicant’s credit score. The higher your score the better the interest rate will be and the larger the credit limit. Plain vanilla cards are typically the first general credit card a consumer will be approved for as they cost lenders less than other types of cards.

What to look for: Beyond looking for a low APR for purchases and an adequate credit limit, many standard cards encourage new customers to apply with a zero or low APR introductory rate. Be sure to understand how the rates apply, when the introductory period will expire and how high the ongoing rate will be.

Secured Credit Cards

Sometimes referred to as credit for people with poor credit, a secured credit card requires some form of collateral to back the loan. It may be money on deposit in a specific account or a lien on your home or auto. Typically, the value of the item needs to be of equal or greater value than the amount being borrowed.  This is a good option for people who need to establish a credit history.

What to look for: This type of card is intended to be used for a short period of time to help you establish or repair your credit, so a large limit isn’t typical; expect a limit of $300 – $500. Look for a card that doesn’t charge an application fee and one with no or a small annual fee. Be sure that the account activity will be reported to the major credit agencies by asking a representative before applying.

Reward Program Cards – Travel, Cashback, Points or Miles

With so many choices, there’s sure to be a reward credit card program for each individual’s desired purposes that also provide the potential of earning great bonuses. This is one type of credit card that requires some thought to choose one the best meets your needs. For example; Travelers would benefit the most from a frequent flier or travel reward cards, which does not make much sense for someone who stays close to home and would enjoy the advantages of earning cash back rewards instead. Also, be aware of your accumulating rewards and bonuses… don’t let your credit card rewards to get wasted.

What to look for: Don’t bother with anything less than 2% or equivalent in rewards. Check if additional rewards are given for purchasing from select merchants or categories. For example, make a purchase from Amazon.com with an Amazon credit card and earn double reward points. Because these programs can be costly, an annual fee is often applied to the card; look for one that does not have fees attached.

Student Credit Cards

With the enactment of the CARD Act, anyone under 21 years of age is required to have a cosigner to be approved for a credit card unless they can prove sufficient income to manage the account on their own. A student card is designed to help young people establish a credit history, which is essential for future borrowing needs. Many

What to look for: There’s little difference between a student card and a standard card, except the educational services often provided by the issuer. For example, Visa has a website for student’s to learn how credit works and help them to make wise choices. Shop around for the lowest rates and best terms, just as you would for any other credit card. 

Balance Transfer Card Offers

While balance transfer offers may be a gimmick to lure you in, they are a great money saving gimmick for cardholders who carry a balance that are worth examining.

What to look for: If you transfer a balance from a high interest rate credit card to a lower rate card, there is usually a transfer fee and sometimes a time limit at the lower interest rate. Be sure that you’re really benefiting by adding all the costs up before you make the transfer.

The best credit card for you is a highly independent decision. What’s good for one person may not be good for you. No matter which type of card you choose, the focus should be on maintaining a decent credit rating or building or repairing a damaged one. Be sure to read the terms and conditions to reap all the benefits of any credit card you’re considering. Keep in mind that credit cards should be used as short-term loans and repaid as soon as possible. Be prepared to pay off the balance each month so as not to incur interest charges or become overly burdened with credit card debt. In this way, you’ll be borrowing from the bank free of charge.