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For many college students, credit card debt is real and it is a serious matter. While a credit card may seem like a good idea to help you develop a solid credit history and some financial independence, you should be wary of how you utilize this resource.
Many parents and former college students will tell you to avoid credit cards at all costs. This is good advice only in the sense that all a college student really needs is a checking account and a debit or check card to make it through school. There are many mistakes that students make when managing their credit cards while in school. According to credit card debt surveys, the most common credit card mistakes made by students include:
• Not Budgeting
• Making Late payments
• Applying for a credit line you can not afford
• Spending money you can not afford to spend
• Excessive use of cash advances
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All of these mistakes equate to irresponsible money management. For example, it is not a good idea to use your credit card on a regular basis with no regular source of income. So when that summer internship is over, it may be a good idea to tuck that card away for a few months.
For those that are carrying balances on their credit cards, don’t panic. According to Evan Hendricks, author of Credit Scores & Credit Reports, you do not want to keep a balance over 30% of your limit at any given time (for example, if your credit limit is $1,000, you should not owe more than $300 at any given time). If you are in a situation where you owe more than this percentage, do not panic. There are many resources available to help you climb out of debt. The most important concept is to limit your spending to an amount you feel you will be able to pay off.
Ideally, it is best to pay off your balance at the end of each billing cycle, but for those who cannot you should always pay more than the minimum. Paying the minimum balance will result in you paying more money to the lender in interest fees. Which ever decision you decide to make in how you chose to build your credit history, the one theme that remains the same is responsibility. Watching your sending habits, and setting up a concise, realistic budget are key steps in establishing a solid financial future.
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The term debt is one that often makes us cringe. What a lot of individuals do not realize is that debt is a part of life and for the average individual and it is something that we will all deal with at some point in our life. Even so, many people do not realize that debt actually falls under two categories. There is good/acceptable debt and then there is bad debt.
According to Money101: Lesson 9, an article on controlling debt from cnnmoney.com, the average household in America with at least one credit card has an average of $9,200 worth of debt. Now, this may not seem like much to the average working individual, but a this debt coupled with car notes, mortgage payments and other expenses can add up. Credit card debt is a prime example of what can be referred to as bad debt. Any debt that causes you to spend more than your means can be considered bad debt. This is because this type of debt is typically accrued on things that do not gain any value. According to cnnmoney.com using a credit card to purchase things that you use quickly is a good way to work yourself into debt. Avoiding purchases like this if you cannot afford to pay it off in a month or two is the safest way to avoid bad debt.
Now taking a look at what would be considered good debt. Bankrate.com’s article on debt basics quotes Gateway Financial Advisors’ CEO Eric Gelb as saying,
“Good debt is investment debt that creates value; for example, student loans, real-estate loans, home mortgages and business loans.”
So if you are investing in something that will appreciate over time such as your education or real-estate, this is an acceptable form of debt. It is however, still very important to make sure that you do not borrow more than you can afford to pay back. This is where financial consultation becomes a very important factor, particularly in starting a business or investing in real estate.
Use this knowledge on what types of debt are acceptable and what types you should avoid to help build a stable financial background. A person’s financial and credit history is becoming more and more significant in determining not only their eligibility to make major purchases (cars, home, etc…), but also whether or not they receive a job offer. Always make sure that you handle you responsibilities.
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-Isaiah Ramsey Region II Publications Chair
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