build your credit and avoid debt
SPRINGFIELD, Mo. (KY3) — Many college students take the first steps in building their credit by getting that first credit card. While accessing these resources can be exciting, managing them requires discipline and responsibility.
Credit cards can be a good thing. They can help you establish a credit and payment history and make safe online purchases. The trick to using these things to your advantage is good money management.
First, buy a card that suits you. Try to find companies that offer student cards with rewards. Once you’ve been approved, treat the credit card like a debit card and set a budget, and don’t charge more than you can afford.
If you’re making a big purchase with a credit card, try to save some money first. Use the card to make the purchase, then pay for it with the money you’ve saved once you receive the statement. This will help you avoid interest and establish a good credit history. Your first credit card will most likely have a high interest rate. This interest will accrue if you make small payments instead of paying the entire statement.
“As soon as you get a credit card, it shows up on your credit reports,” said Doug Watson, senior counsel at Consumer Credit Counseling. “When you get a new one, you’ll get a high interest rate, probably 20-25% or more. This prevents people from paying them back very quickly because the interest is so high that the payment is higher to actually pay.
Remember that when you use a credit card, you are taking out a loan that must be repaid. To avoid overspending, use the credit card for small purchases like gas or groceries that are already part of your monthly budget. Once you receive this statement, pay it off in full immediately to avoid interest charges. Avoid charging for things like a new wardrobe or a trip until you know you have the money to pay for it.
“I often have people come into my office saying, Well, when I was in college I went crazy with my credit, now I’m paying it off,” Watson said. “We put them on programs to try to pay off $1,000 in debt that students sometimes ran up while in college because they were able to get a few credit cards. They went crazy with them, without thinking about the consequences later or what it really cost them.
Don’t charge more than you can afford to repay. It can be tempting to buy new clothes or book a trip, but if you can’t pay it back, you’ll accrue interest that can be difficult to repay and affect your ability to make future purchases.
“When your credit score goes down, you suddenly have a hard time renting a place because you can’t qualify, you have a hard time getting a car or something else that’s a bigger loan because your credit score is too low, even affecting your buying your first home because your credit score is too low,” Watson said. “All because you mismanaged your credit cards when you were in college.
Every time you apply for a credit card, it does a thorough investigation of your credit report, which lowers your credit score.
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