Credit cards: the promise land
for many. We all long to walk into a store, pick out that dress or DVD player we've had
our eyes on, slap down a credit card, sign, and walk away with the goods. But then the
payment comes due. You don't get paid until next week. Rent is due and the phone company
will turn off the phone if you don't pay by the end of the day.
You file away the credit card statement in the miscellaneous drawer and
vow to pay it next week. A month passes and you receive another statement. This time you
notice your low introductory fixed interest rate of 2.9% has skyrocketed to 21% and the
credit card company has tacked on a $20 late fee. If this sounds familiar, you're not
alone.
Each year thousands of students are solicited by aggressive credit card
representatives on campus who pay for the opportunity to sign up students for credit
cards. Lured by low introductory rates, free gifts and the promise of increased buying
power students gladly comply. However, as the saying goes Beware of Wise Men Bearing
Gifts.
Two of the most common slogans credit card companies use are fixed and
pre-approved. If you see either of these terms read the fine print. Often, fixed
introductory interest rates stay fixed only for a short time and then are converted to a
standard fixed rate which if you've got good credit could land in the 11% to 13% range.
Miss a payment and that fixed rate becomes 18% or 21%. Credit card companies also reserve
the right to raise the interest rate at any time.
Beware also of late fees and over limit fees which are the lifeblood of
credit card companies. ABC News Nightline, August 30, reported that last year credit card
companies received $18.9 billion in fee revenues.
On the flip side, because there is so much competition between credit
card companies for your business, if you are a good customer and pay on time you can play
one company off the other and ask for a lower interest rate.
The term pre-approved often has conditions, requiring students to put
money up front for the amount of credit they receive. For instance, say a credit card
company says you've been pre-approved for up to $200. All you have to do is send the
credit card company $50 and they will send you a secured credit card. However, when you
get the credit card in the mail you only receive a credit limit of $50. You've just given
someone fifty bucks that you could have deposited into an interest baring checking account
instead.
And what happens if you are turned down for a credit card? According to
the Federal Deposit Insurance Corporation, as reported by the Pasadena City College
Courier, when someone's application gets rejected, it is reflected on his or her financial
record. Minus points are added to their credit files, making getting future school, auto
or real estate loans more difficult. The more rejections received the harder it is to get
a loan.
So if you decide to apply for a credit card make sure you have the
requirements that you would want if you were the credit card company, such as a job and a
checking account. If you don't have either of these basic requirements then you run the
risk of being rejected and that free filofax could come back to haunt you down the road.
If you are approved for a credit card it is best to pay off the balance
in full to avoid high interest charges and late fees. The United States Students
Association (USA), a national student organization which represents millions of students,
reports that 59% of students pay their credit card balances in full each month compared
with 40% off the general population. Of the 41% of students who carry a credit card
balance, 81% pay more than the minimum amount due.
If you get into credit card debt and need help, the Consumer Credit
Counseling Service (CCCS) can help you consolidate all of your credit cards and negotiate
more favorable terms with each credit card company you have an outstanding balance with.
It will cost you $10 a month but they'll save you several times that amount by eliminating
late fees and high interest rates. You make one payment a month to CCCS and they disburse
the money to each credit card company. CCCS also conducts free seminars to help you manage
your finances better.
For more information on credit cards and money management call the
Consumer Credit Counseling Service at 1-800-540-2227 or visit www.credittalk.com.
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