Call it what it is -- a loan card, not a credit card.
Why? Because every time you use it, you take out a bank loan. A loan you pay interest on. Next time you want to buy a sweater or a restaurant meal, ask yourself whether you're willing to take out a loan and pay interest for it.
Things not to do with your credit card
- Don't use it as an ATM card or phone card. You'll pay a whopping interest rate, usually more than you do for purchases.
- Don't use the "convenience checks". They also charge you whopping interest, since they count as cash advances.
- Don't ignore the bill because you're scared of the balance or too busy to deal with it. If you miss the due date, you'll not only be charged a late fee (and then charged interest on the late fee); you risk hurting your credit rating, and that can hurt your chances of buying a house or getting a business loan someday.
- Don't look at it as "extra money" or a "cushion." It's neither. It's a loan.
Credit use warning signs:
- Despite your best efforts, the balance keeps going up.
- You frequently run out of money before your next paycheck and use your card to buy groceries, gas, or other necessary items.
- You seem to have "emergencies" every month -- car repairs, utility deposits, unexpected fees, PAULA tickets -- and most of them go on your credit card.
- You make impulse purchases on credit without knowing if you have money in your checking account to cover them.
- You use credit cards to pay for frequent medical expenses you can't afford and aren't insured for.
- You cannot keep track of how much you're spending when you charge.
If any of these sound like you, call for free, confidential financial counseling at the
Consumer Credit Counseling Service on-campus at 335-3239 to get your budget and credit use back on track. This is completely confidential; neither the university nor your parents will have access to what you discuss there.
So when is it good to use credit cards?
- You know you have the money to cover the purchase and you deduct it immediately from your checkbook balance, because you always pay your card balance in full.
- You have a one-time emergency, like your car breaks down far from home and the tow company won't take checks.
- You're buying plane tickets or other items where security issues make using cash difficult.
What if you just can't get disciplined about your credit-card use?
Keep the credit cards out of your wallet, and try a prefunded card like the Visa Buxx or American Express TravelFunds card. When the money on the card is gone, your card stops working. You have to reload the card from your checking account, which forces you to notice how much you're spending. For online use, you can also use a prefunded Paypal account.
The best solution: leave the cards home.
You can't overspend on impulse if you're limited to cash, checks, and prefunded cards and accounts. Save credit cards for trips and emergencies...and don't give yourself permission to define "emergency" as "I
really want an iPod."
A warning about debit cards:
Can your ATM card work as a Mastercard or Visa? If so, it's a debit card -- it takes money out of your checking account when you charge with it. That means a thief with your debit card number can wipe out your checking account. While credit cards generally protect you from fraud, debit cards often do not carry such guarantees. Some people call debit cards "financial death cards" for that reason.
Unless your bank states in writing that your bank account is protected from debit card fraud, think twice before you debit. Consider getting an ATM card that can't be used as a Mastercard or Visa.
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