Student Debt and Credit Education Blog

If you have a credit card, it is common knowledge that paying the balance off quickly is desirable and benefits your credit score. However, did you know that thanks to new legislation that was passed in February, paying more than your minimum can actually save you more money than before?

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 has a provision that specifically states that any overpayment made on a credit card MUST be used on the balance with the highest APR*. Before this law was passed, a bank could go ahead and apply your extra payment to whatever APR tier they wanted; this would minimize the impact of dedicating more of your income to paying down your debt.

*If you want to learn more about APR, check out our Credit Education Center article on annual percentage rates. (more…)

There are three types of people when it comes to credit card use. The first type abstains from any and all cards. The second type has so many cards their wallet is the size of a cinder block. The third type have a few credit cards, but sometimes wonder if they have too many or too few. So what is the “right” number of credit cards?

For starters, there is no right amount. How many credit cards you should have is related to your ability to manage debt and make payments. If you are a responsible card user, the amount of cards in your wallet is more or less irrelevant.

Second, the amount of credit cards you have will affect your credit score, but not necessarily in the way you think. The amount of cards you have is more informational than anything. If you have a high amount of debt, the credit report will seek the number of cards in your name and interpret that as a basis for your debt. Again, if you have a good rating and low debt, having a high number of cards won’t matter. Check your credit score today!

How many cards you have is based on you. If you have a card, you might have a gas card. You might have a card only for emergencies. You might have a card with sweet rewards benefits that you use for everyday purchases. Make a list of the items in your life for which a credit card will be useful and go from there. Also, if you have credit cards to pay off other credit cards to pay off other credit cards, you might be in need of a debt consultation.

ScholarshipPoints code: HOWMANYCARDS

A lot of blogs (like this one) try to teach you ways to save money. One recommendation that tends to get swept under the rug is calling your credit card company and asking for a reduced interest rate.

The reason this strategy gets overlooked is because it sounds complicated and, frankly, far-fetched. In today’s economy, what kind of business would willingly allow you to let them lose money? To be fair, in the worst patches of the recession, many card companies did in fact turn down consumers who tried the old “I’ll threaten to close my account.”

First,do some research. This should be surprisingly easy. If you have received a number of offers from other companies, you can use that as leverage. Take a look at some of their offers. Don’t go in blindly and ask for zero percent APR. You won’t get it. Aim for a rate slightly lower than your current one. Even a slight reduction can save you a decent chunk of change in the long run.

Second, get your financial house in order. Only very good credit card users will get a lower interest rate. You will need a strong credit rating, with very few or no late pay charges. You can’t have a large balance on your card. You must make more than the minimum monthly payment. The company will look over all of these factors before deciding to lower your rate.

Third, be persistent. If you get rejected one day, that doesn’t mean you will get rejected the next. If the company simply won’t budge on the interest rate, request additional rewards benefits. If THAT doesn’t work, you could begin looking for another cardholder. Visit our credit card comparison page to look over your options.

Image credit: peekblockit on Flickr.

Having your credit card stolen can be a traumatic experience, but if you take action early you can prevent being the victim of a crime from hurting your credit and possibly costing you a lot of money.

As a preventative measure, you should periodically check your card statement for any unusual activity. Many credit cards use their own security measures and will contact you if, say, you live in Boston, but your card show a purchase made in Denver. But you shouldn’t count on that. Keep track of your own finances and confirm all of your purchases, even small ones.

Always report your stolen card immediately. All you have to do is call the bank and be sure to note the date and time when you noticed it was missing.  The company will put a block on the card preventing it from being used. If you report the card stolen on the issuer’s web site, print a copy of the confirmation.

If you are sure your card was stolen (as in, you were mugged), contact the police immediately. Get a copy of the report in case your identity is stolen as well.

Finally, contact the three major credit bureaus and report that your identity is stolen. Place a fraud alert on your file so that no new credit can be granted with your approval. The three bureaus you will need to contact are Equifax (1-800-525-6285), Experian (1-888-EXPERIAN) and Trans Union (1-800-680-7289).

When the matter is resolved, spend the next few months being very diligent about your credit. Monitor your card expenditures and bank accounts. If you see anything out of the ordinary, immediately contact your bank or the police.

Click here to review your credit score and history.

At some point in your credit card life, you might become tempted to play the balance transfer game.

Here’s how it works: You get a high balance on your credit card. Rather than pay the high interest rate, you move the balance to a card that advertises a low- or zero-percent rate on transfers. Then that promotional period expires and so you transfer to another card. And around and around it goes.

The balance transfer game, like most tricks when it comes to money and debt, is ultimately a short-term solution to a long-term problem. It’s not the worst thing you can do with a credit card, but it does little to get you out of debt and on the right path to financial responsibility. Here are some of the inevitable drawbacks of balance transfers.

1. There is almost certainly a fee attached to any balance transfer. One some cards, it might only be about 3% which doesn’t seem like much until you start transferring a higher balance over to a new card. A $3,000 transfer with a 3% fee will cost you an extra $100. This plan isn’t looking so hot now, is it?

2. It can be damaging to your credit. Yes, the more credit cards you have can be a detriment to your credit score. Having 1-2 cards is common, even recommended. Having six or seven active cards, however, will make you look irresponsible and will show up on your credit score.

3. That 0% rate is not permanent. Here is what card companies don’t want you to know about that promotional period. The interest rate doesn’t simply go up as soon as the deal expires, it retroactively puts all of the interest from the period on to your card. That means, if the period is for six months, and you don’t pay off the balance, SIX MONTHS worth of interest is automatically applied.

Instead of transferring a balance, consider calling you credit card company and requesting a lower rate – Yes, this can be done, if you are a customer in good standing and you have been with the bank for a long time. Also, hinting to the company that you’re considering switching card companies won’t hurt.

Image credit: debtcovered on Flickr.

When I was in college, I bought my first laptop using a financing option. The terms of the agreement stipulated that if I paid off the balance in six months and make at least the minimum monthly payments, I wouldn’t be charged any interest. Perfect, I thought. I’ll put a little aside each month and in six months, the laptop is mine. Like any good American, I became complacent and kind of ignored the bill.

About three months in, I forgot about it all together, and didn’t look into the charge until the end of the six month period.  Because I didn’t read the fine print, I didn’t realize that missing a payment, or even being late on a payment meant the no-interest financing deal was off, and I was immediately charged the full six months of interest.

That’s the dirty little secret about no-interest financing. It’s incredibly fickle. There is no margin for error. Not only that, but the interest rate jumps from a wonderful zero percent, to a wallet-crushing 20% or more. After that expensive lesson, I still take advantage of no-interest financing, but now I set up automatic bill pay. If you are going to take advantage of a seemingly great financing offer, I suggest you do the same.

If you are attending college for the first time in the fall, you have probably been inundated with a list of items you need to buy before your folks drop you off at the dorms, from a laptop to a shower caddy. Well, here is the opposite of that list. Here are some things you will be tempted to pay for in college – but shouldn’t.

New Books at the Bookstore – During my entire freshman year in college, I bought all of my books at my school’s bookstore. I spent a little over $1,000. After that, a friend introduced me to Half.com. From then on, the most I ever spent in a semester was $150.  The point is, there are so many options out there for finding the textbooks you need, that you should consider your college bookstore like a last resort. Check out Half.com, Amazon.com, or even eBay. Ask your professor if she keeps one on hold at the school library. Speak with a couple of classmates to see if they are interested in sharing a book.

All of these are better options than the school bookstore.

Writing Services – Regardless of your major, you’re going to have to do a lot of writing in college. You will also see a number of ads from “writing professionals” who want to lend you a helping hand. Do. Not. Bother. First and foremost, having someone do your work for you is unethical. You and/or your family are paying a lot of money for you to get an education, not to have some hustler do your work. Second, it’s astronomically stupid. Many professors are wise to these services and all it takes is a hint of suspicion and a quick Google search and you will be busted. These days, many colleges and universities have zero-tolerance academic honesty policies. It’s just not worth it. Write your own paper.

Fast Food – You will be tempted as a student to simply spring for a burrito and a Coke every night. Don’t. While it’s okay to cheat every so often (I used to allow myself fast food on Friday and Saturday, and either cooked or visited the dining hall every other day), if you become a regular at your area Burger King, you’re going to get a head start on your Freshman 15, and the only thing you will have that’s skinny is your wallet.

Credit Card fees – If you elect to get a credit card for school, be responsible. Set up automatic billing so you don’t miss a payment and get hit with a late fee.

ScholarshipPoints code: NOSPEND

“Take 10% off those jeans today!”

“Get 25% off your next purchase!”

“Finance that laptop with a low interest rate for 18 months!”

These days, almost all major retail chains have their own store-specific credit cards, and with them, a host of attractive introductory offers.

So what’s the catch, you ask? With interest rates often in the mid-20% range, the fees are much stiffer if you don’t pay off your balance on time. In just one or two pay cycles, that $10 discount can become canceled out by interest.  But while the interest rates are often astronomical, there are some positives to using a retail credit card.

For starters, it is a very easy way to start building a line of credit. If it’s a store in which you generally use cash, odds are you can pay it off right away anyway, so by using a credit card, you not only get the discount, but improve your credit score. Retail cards often have a very low credit limit as well, which means you can boost your credit rating without the risk of spending your way into bankruptcy. On top of that sweet introductory offer, many stores have Customer Appreciation Days and reward programs that can provide further discounts down the line.

If you’re looking for a bigger purchase, such as a computer, shop around for stores that offer six months or a year of zero percent interest. Then, you can pay it back a little at a time, and as long as it’s paid by the deadline, you don’t owe any interest.

As with normal credit cards, responsibility is key. Avoid overuse and always pay your balance. For more student credit card tips, visit our forums!

One of the nice things about having a credit card is the perks. Card companies love to offer incentives to customers so they will use their cards more. Two of the most popular – and useful for customers – are cash back and rewards points programs. Which program works best for college students? Let’s break them down.

CASH BACK: Cash back programs allow you to earn cash based upon a percentage of your daily charges. For most cards it’s a flat rate; for others you can earn more or less depending on what type of purchase you’re making. My card, for example, lets me earn up to 5% cash back on gas. (A nice bonus if you’re planning a road trip.) Other cards allow you to earn more cash back for things like groceries or using your card at certain stores.

REWARDS POINTS: Points programs earn you a specific number of points for every dollar you spend. Those points can then be used almost like a gift card at certain stores designated by your card company. One of the most common types of rewards points programs are airline miles cards. (I would highly recommend this if you are going far away to school and will need to fly home a couple of times per year.)

So which is best for you? Obviously, cash back offers you more freedom. Unlike rewards points, you can use your savings pretty much anywhere, or to pay off some of your balance. It’s like getting a small discount every time you shop.

Conversely, rewards points typically give you more since they are targeted toward certain stores. If your card is partnered with a specific department store, both the card and the department store will want you shopping there.

I would personally stick with cash back if you are planning to make a bunch of small purchases at many different locations. Even if you’re only getting 1% cash back every time you use it, it can still add up.

However, if you know the stores where you plan to shop, and those businesses coincide with your credit card rewards partners, you might be better off using a points program. As I said before, if you plan to fly a couple of times per year (either to go home or on spring break), then I would recommend an airline miles card. A friend of mine went to school in Boston, but lived out in California. She used her card enough where her flights were almost all paid for by the time her junior year came around.  NOTE: Some cards have expiration dates for rewards points and airline miles. Always check these first.

Also, remember cash back and rewards points are based on your use of the card. If you use the card too much and can’t make your payments, the impending interest you will owe could render any points or cash moot. So be careful!

ScholarshipPoints code: CASHREWARDS

Image credit: pfreviews on Flickr

Missing a card payment can be a nerve-wracking event if your credit is less than stellar and you are trying to build up a positive history. In recent times, a missed payment can result in a bank drastically reducing your credit limit, jacking up your annual percentage rate (APR) and worst of all, put you into default status.

Default is something that you should be trying to avoid with all your power. It immediately signals to existing and future lenders/creditors that you don’t know how to handle your finances and makes them extremely hesitant to do business with you. Although resuming your payments will bring you out of this status, it still is a red flag on your credit history, and can haunt you for up to four years.

If you missed a payment, the first thing I recommend is contacting your bank’s card services department. Explain your situation. Be nice and polite. In many cases, the bank will give you a one-time fee waiver and restore your account to its previous status. I accidentally missed a payment on my Bank of America AMEX card a few months ago and a friendly account manager was more than happy to clear my record when I asked nicely. As long as you don’t have a record of delinquency, bankers are usually more willing to help you out in the case of a mishap.

If you missed a payment because you couldn’t afford to make one, that gets a little more tricky. My recommendation in this case is to be honest about your situation with your bank. Although this reflects worse on your account than an accidental miss, nine times out of ten, the bank will at least respect the fact that you are informing them of your change in financial status and find a solution. In most cases, this involves freezing your credit card and structuring a repayment plan so that you don’t go any further into debt than you already are.

Bottom line: Be safe with your cards and don’t spend outside what you can afford to pay back within a month or two. If you need help, ask for it. Many banks are much more willing to negotiate and work with you on recovering their money before it goes into a collections status and your credit gets ruined any worse than it has to be.