College students,
Consider me a concerned friend. Concerned? Oh, I'm concerned because it seems like just a minute ago I was telling parents about the lack of knowledge many of you seem to have about credit, in general, and I recently just found out this illiteracy extends to the subject of credit cards too.
See, a recent survey shows almost 40 percent of you have a credit card in your name, yet very few of you (9 percent) know the interest rates on them. I am encouraged though because over half of you (71 percent) understand that on-time payments impact your credit score. So today I thought I would come directly to you and share some lessons you should know about credit cards.
This is coming from someone who graduated undergrad with $36,420 worth of credit card debt alone. So if you're looking for advice, I'm definitely the one you want to take heed from, that is unless you want to end up in bankruptcy court like I did. I'm going to assume you're ready to listen since you've navigated your way here, so let's get right to it. Here are six important lessons you should know about credit cards.
Lesson No. 1: Credit cards are not your emergency fund.
I know how tempting it can be to have a credit card sitting in your wallet. You've already told yourself you're going to use it for emergencies only, but yet you've failed to set aside cash to cover emergencies. If one thing is for certain, emergencies are going to happen!
Wishing them away won't stop your tire from going flat or the professor from assigning a last-minute textbook. Things will pop up and you should be prepared to handle them with cash. Your credit card shouldn't be used as a crutch for when money is tight. Credit cards should be used as a tool to build your credit. Nothing more and nothing less.
Lesson No. 2: Credit cards are not your enemy, you are.
Credit cards can be a powerful financial tool if used properly. You could reap the benefits of cash back, travel rewards, a solid credit history, etc. To get the most from credit cards, I recommend charging no more than your normal monthly expenses. Basically, this means you shouldn't charge anything you can't afford.
Many people make credit cards out to be the enemy when in reality we are our own enemies. We all make our own choices and if you choose to use money loaned to you for things you can't afford, I'm sorry to tell you it's no one's fault but your own.
Lesson No. 3: You should be afraid of accumulating debt.
According to LendEdu's survey, 47 percent of students surveyed who didn't have a credit card, indicated they are afraid of the possibility of accumulating credit card debt. Well, I'm here to tell you that you should be!
Debt is not something you want to accumulate with the intentions of paying back on some unknown future date. You know, like one day when you get a job. I hate to break it to you, just because you get a degree it doesn't mean you're guaranteed future employment. If you're not already employed, debt is a risk you shouldn't be willing to take. Which leads me to the next point...
Lesson No. 4: If you don't have a job, you can't afford to holla "charge it."
Your credit card is not a status symbol. It's not a sign of wealth. It's not something you should pull out and holla "charge it" because you think it's going to impress those standing around you. If you don't have a job to go with that piece of plastic, you can't afford to use it.
Lesson No. 5: You need to know your interest rate.
So, what is an interest rate?
An interest rate is a fancy way for creditors to say you owe me for borrowing my money. This is a rate they have deemed appropriate to charge for extending you credit. It costs money to use a credit card, so don't think your $3.00 drinks at the bar this weekend are actually going to end up costing you only three bucks if you fail to pay your card in full (and on time). You'll need to add anywhere from 10 to 22 percent to that $3.00.
Lesson No. 6: Credit cards are not a game.
Finally, please be aware that credit cards are not a game. With credit cards come responsibility and consequences. If used responsibly, you can build a solid credit score that will complement your financial well-being. If used without caution, your consequences could include the inability to land a job after graduation, lease an apartment, obtain decent interest rates for auto and mortgage loans, or secure affordable insurance rates.
I'm sincerely concerned about your financial future because the numbers don't lie. Even though the percentage of you who actually own credit cards is lower than expected, you still lack the basic information you need to know about credit cards.
Unfortunately, I had to learn things the hard way. Not only did I graduate college with credit card debt, I accumulated my fair share of medical and student loan debt to go with it. When I filed bankruptcy, I was in over my head with a total of more than $90,000 in debt.
With this being said, I don't want to see you make the same mistakes I did; therefore, I am here offering my two cents on everything I should have known about credit cards. I'm hoping you'll cash in, take these lessons to heart, and avoid some of the devastating effects of being irresponsible with credit cards.
Sincerely,
Latoya, A Recovering Credit Card Abuser