Student Debt and Credit Education Blog

Often times, you see words or phrases on student credit card offers that may not make a lot of sense or seem misleading. Check out the terms I’ve outlined below and discover what some of the more common snippets actually mean:

cash advance – A cash advance is when you use your credit card like checking account, and withdraw money from it. You usually have to set up a special PIN number for this, and can do it at most ATMs. I highly recommend never doing this because the money you withdraw has a much higher interest rate on it than simply charging whatever you are buying. For example, my MasterCard’s purchase APR is 13.9%, and its Cash Advance APR is 24% — pretty big difference.

charge card - A charge card is a special type of credit card, because it has to paid off at the end of the month. Think of the old style American Express cards. Many business credit accounts are charge cards, and most have a much higher line of credit (or an unlimited one) and a set annual fee for use.

credit limit – Your credit limit is the maximum amount of money you can charge on your credit card without incurring penalties or extra finance charges. If you go above this limit, it can hurt your credit score and rack up all sorts of hidden charges in the fine print of your bank statement.

credit score – Raising your credit score is pretty much the #1 reason for using a credit card. It is a number that is generated by three different credit card bureaus (Transunion, Equifax, and Experian) and is used for a ton of different things you will likely do in your life… like buying a car, buying a house, renting an apartment, and even background checking for a new job. The higher your credit score, the better equipped companies think you are to handle any type of financial debt, and as a result, they are more generous in their offerings to you, be it a lower interest rate on a loan, or an approval on that apartment you’ve been eyeing with your best friend.

default – Default is something that it is vital that you understand, from the moment you are issued a credit card. The bottom line is this: if you fail to make more than 2 or 3 monthly payments in a row (depending on the specific rules of your bank) you can go into default, and get crazy amounts of interest and a much higher APR levied on your credit account. It also pretty much ruins your credit score. Short and simple — always make your minimum payments.

fixed interest rate – A fixed interest rate means that your Annual Percentage Rate (APR) on credit card purchases does not change with the performance of the economy. If you can qualify for a low fixed rate APR, you are in really good shape and probably have a good or excellent credit score.

secured credit card – A type of credit card that requires a deposit for use; think of it like a security deposit on an apartment — you pay it at the beginning and get it back when you close the card or roll over into an unsecured type card. Banks typically offer these people with bad credit or short credit history to (re)build their status with the credit bureaus. Be on the lookout for fees, because there tend to be a lot associated with this type of card.

unsecured credit card – This is the most common type of credit card. You are given a line of credit, and you are allowed to make charges up to the ceiling of that line. You are required to make a minimum payment each month, usually derived by some formula the bank has established on your total balance. Depending on the features on your card, there may or may not be an annual fee or membership fee — check the fine print.

variable interest rate – A variable interest rate means that your annual percentage rate (APR) on credit card purchases can change depending on something called the Prime Interest Rate. This rate is officially set by the Fed and is totally dependent on economic stability. If the economy is good, the rate will be low; if the economy is bad, you’ll be paying ridiculous amounts of interest. New laws going into effect soon will regulate banks’ ability to change your interest rate and require them to notify you of these changes and the ability to opt-out and close your account.

ScholarshipPoints Code: UNDERSTANDCREDIT

From personal experience, living in the dorms isn’t always the most pleasant experience, and many students choose to move out of the dorms after their freshman year. There are a lot of benefits to getting an apartment, including more privacy and your own room and kitchen, among other things. In addition, apartment living can give you more independence and freedom, since you can have friends over and do what you want without having to deal with the often overzealous campus security officers.

To that end, I’ve put together a short list of resources and tips if you are thinking about living off campus that will definitely help you save money and live more comfortably during your new adventure.

Finding an apartment. Thankfully, many schools have an office set up expressly for the purpose of linking students up to find apartments or as sort of a roommate matchmaking service. At Suffolk University, my alma mater, it was called the Off Campus Housing Office (OCHO)… your school probably has a similar name, and if you look on their website it should be relatively easy to find. In addition, there are a ton of websites online devoted to matching people together for roommate situations and apartment searching, including Rent.com and Roommates.com. Craigslist.org can be a great resource for apartment searching too, though I advise a cautious attitude when looking at apartments to make sure everything is working properly and to always bring a buddy – they often will notice things that you may not at first, and the buddy system is always smart when going somewhere you aren’t familiar with.

One point I’d like to make in favor of apartments is you often can save a lot of money by living in one. In 2009, the average cost of Room & Board at a private 4-year university came to $9,363 nationally. If you have one or two roommates and are somewhat frugal, you can save close to 30% on that cost (and potentially more) depending on where you live. Note: This is not applicable to all schools, since the city is usually more expensive, and for a suburban or rural school, a dorm may end up just being a better option and much more convenient for the average student.

Renter’s insurance. Renter’s insurance is the best friend of any student and apartment dweller, because it is inexpensive and protects all your valuables. Although the price varies from state to state, it usually costs around $200 a year to insure up to $20,000 worth of clothing, electronics etc. in case of burglary, fire, and other mishaps and/or forces of nature. One thing I recommend checking on is if your insurance package covers flood, because if the sprinklers go off in a fire suppression system, they WILL ruin your electronics and most dorms and landlords make sure they aren’t legally obligated to replace that type of stuff.

Gift cards instead of cash. This may sound kind of weird at first, but there’s a really good reason why gift cards (especially for supermarkets, etc.) are way better than cash: you can’t blow a grocery gift card on clothes or something else. During my time at school, I found that the more you have paper money, the more it burns a hole in your pocket and you’re tempted to spend it on something you don’t necessarily need. A gift card just ensures that you are using it for the intended purpose.

A backup credit card. Yes, student credit cards are very controversial. I’ve seen countless comments on these blogs that make excellent points why they can be a bad idea in the wrong hands, but here’s my argument for why you should have one: if you get into trouble, it can be a lifesaver.

My personal example for why a credit card is important comes from my sophomore year at school, when I was working part time to pay for my food costs (I was living off campus) and utilities. Basically, I had been laid off my job because of downsizing efforts, and I went through a three month period of being underemployed before I eventually found a replacement job. Without a credit card to finance basic needs like food, it would not have been a pretty situation.

This is just something to think about… because in our current economy, you always  need to have a backup plan. A student credit card can be a blessing and a curse, but in my experience, it was a valuable tool that tided me over during a hard time and I am very thankful that I had it in the first place.

ScholarshipPoints code: OFFCAMPUSLIFE

Image Credit to IFGD (Flickr)

Let’s start at the beginning. You’re entering school, and find out that maybe financial aid doesn’t fully cover all your expenses, like books, supplies, maybe a meal or two a week that goes under the radar. You think to yourself… “well ok, maybe I’ll get a credit card — I mean I have to start building my credit history up anyway, right?”

This is an extremely common scenario among new and even existing students. According to the Washington Post, in 2010, it is estimated that students will spend anywhere between $700 to $1,110 annually on textbooks. This does not factor in living costs (room and board, or rent and utilities if in an apartment), things like your cell phone plan, and other incidentals that hindsight never sees ahead of time.

Therefore, having a plan for paying for these types of things is absolutely essential and rewarding. Today, there are a lot of different options.. and I’ll go over some of them with you to help figure out which of them, or combination of a few works best.

1. Student Credit Cards

Controversial, but very useful. In the current world and economy, a good credit history is an invaluable tool for everything from getting a great apartment to potentially a job (yes, some actually do credit checks), among other things. A favorable credit score is a very clear indicator of your ability to plan and be responsible for your finances, and that translates very clearly into the workplace and beyond.

So what’s with the stigma attached to our little plastic wallet buddies? Well, for starters… if you charge things you can’t afford to pay off in a reasonable amount of time, you’ll run up a large bill. One way of putting an artificial ceiling on your spending and preventing this is to set an intentionally low credit limit. If you don’t make a lot of money on a monthly basis… set it around $300, and that way you’ll never owe more in minimum payments than you can afford to pay.

2. Scholarships

Scholarships are definitely a favorite among students, basically because they’re free money. There are tons of opportunities on the Internet to apply and be eligible for scholarships. One such example is a service like ScholarshipPoints. They have drawings every month up to $10,000 and the only thing you need to do is register and participate in their earnings activities. Some examples of these can be anything from reading a blog post like this, to following someone on Twitter, or taking a student survey online. Very simple, pretty easy, and really rewarding.

3. Private Student Loans

Another option to finance student life is a private (or alternative) loan. Students can borrow as little as $500 up to the full cost of attendance, but are subject to interest based on the lender and prime interest rate. The benefit of this type of borrowing is that it eliminates stress in the short term so that you can concentrate on school work, etc. and have a full six months after graduation before you need to worry about paying it back. Many students (including myself) tend to choose this route just because it is easy and you don’t have to worry about putting a dime down on what is owed until after you are done with school. You can find more information about this type of lending at PrivateStudentLoans.

The perfect answer to this question would probably be to use all three methods. Each have their own unique strengths, though obviously scholarships are the preferred way to go if you can win enough of them to cover your costs. Also, federal work study and on-campus jobs can also be good ways to earn pocket money if you have time to devote to working outside of classes. The bottom line is just to make sure you have a plan, and structuring your finances will be much easier once you have an idea where your money is coming from.

ScholarshipPoints Code: PAPERPLASTIC