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Credit Card Management

Credit cards are a handy way to buy things without cash. But as a responsible adult, you need to decide if your purchases are worth the interest you'll pay, and if you can truly afford the future payments. As you get older, you may start being bombarded with credit card offers. Some will seem like a pretty good deal. Just think: you could buy new clothes, download a few apps, maybe even get the newest cell phone, then pay only $30 a month.

If you don't understand all of the charges and conditions, though, credit cards can be a pretty good way to get yourself so far into debt you can't get ahead for years, or maybe ever. To see how, try out the credit card calculator.

Credit Cards Are Another Type of Loan

Would you buy a pair of jeans by going to your bank and taking out a loan? Would you want to slowly pay off those jeans with monthly payments that gather interest? That could mean that jeans with a price tag of $80 might end up costing you more than $100. If you buy items using a credit card and don't pay off the balance each month, you're pretty much doing that. Credit cards may seem like fast cash, but they're really a loan. Remember, every time you use your credit card you're basically taking out a loan. With interest charges and fees, credit card debt can quickly grow out of control.

Credit Cards Aren't Always Bad

Credit cards can help you build credit. But you have to use them wisely; otherwise, credit cards can also hurt you financially. Use these tips to make credit cards work for you.

  • Limit your number of cards. The more credit cards you have, the more likely you are to charge too much. Having a lot of cards in your name can also hurt your credit.
  • Be careful with store cards. Store cards are valid only at a specific stores, they often have high interest rates and less-desirable terms. Saving 10% on today's purchase seems great, but there's a reason they're making the offer. They're hoping to make more money on you later through interest on your balance.
  • Pay attention to the balance. Always know how much you've charged on your card and never charge more than you can pay off.
  • Pay the balance in full. Credit cards usually charge you interest on the balance you carry over each month. Paying in full each month means you won't be charged extra money. If you can't pay off your balance, at least pay more than the minimum due.
  • Understand all the terms of your credit card. Besides interest, credit card companies also make money by charging various fees. Read your agreement (it's that pamphlet of really fine print you got with your card) closely and be sure you understand all the fees that may apply. This will also help you apply for the card that is most beneficial to you. Some credit cards offer benefits that can be useful if you're careful. Read definitions of credit card terms.

Decide If You're Ready

Use these questions to help yourself decide if you're ready to use credit cards.

  • Do I really need a credit card?
  • Do I have the self-control to handle a credit card responsibly?
  • Can I afford a credit card, including the interest charges and other fees that may apply?
  • Will I be able to pay off my balance in full every month?

Advantages of Credit Cards

Credit cards do have some good features, even for poor college students. They can:

  • Be convenient. Using a credit card is fast and easy at the checkout.
  • Build credit. If you pay off your balance each month, you're building a good credit history.
  • Handle emergencies. If your car suddenly needs a new battery or you have an unexpected medical situation, a credit card means you can pay off a bill in smaller, more manageable increments.
  • Earn rewards. Some cards give you points that you can cash in for things like airline miles. (Remember, these things are not free, but earned by buying a lot of other things.)

Disadvantages of Credit Cards

The flip side of credit card use is not so great. Every decision you make with a credit card makes a difference for the future. Remember:

  • A credit card is not free money. Credit card charges are really high-interest loans that may take years to pay off if not handled responsibly.
  • Making your monthly payments is important. It's best to pay your full balance each month. If you don't, you'll pay more than the item's actual cost because interest charges will be added.
  • Misusing a credit card can damage your credit history for years. Bad credit can hurt your ability to rent or buy housing, borrow money or find a job in the future.

Understand Credit Card Terms

Credit cards come with terms and conditions you may not expect or fully understand. Knowing what these terms mean will help you manage your credit cards well.

Annual fee. An annual fee may be charged simply for having the card, depending on your credit card company.

Balance-transfer fees. These fees may be charged when you transfer a balance from another credit card. You may be charged a balance transfer fee from the original card and the new card.

Cash advance fees. These fees are charged when you obtain cash from the ATM by using your credit card. This will usually cost you an additional finance charge of 3% to 5%. The fee may be a flat fee or a percentage of the cash advance.

Credit limit. Your credit limit, or credit line, is the total amount you can charge on your credit card, including purchases, cash advances, balance transfers, fees and finance charges. You may request an increase or decrease in the amount of available credit you have. Your credit card company may charge a fee for this request.

Grace period. Your grace period is the set amount of time, usually 15 to 30 days, during which you can make a payment without incurring finance charges.

Late-payment fees. Late-payment fees are charged if your payment is received after the due date or if you don't make a payment at all. Some companies have a set fee, such as $20 or $30, while others may charge you a percentage of your minimum payment. Making late payments will almost always cause the credit card company to increase your interest rate.

Over-the-limit fees. These fees may be charged if you exceed your credit limit. Some companies will charge you a one-time fee, while others charge the fee each time you make a purchase over your limit. The fee is usually $20, $30 or a percentage of the amount you've overcharged.

Other fees. You can be charged other fees depending on your credit card agreement. This may include fees for opening a new account, paying your bill by telephone or paying your bill with a check that is returned for non-sufficient funds.

Credit Card Help

If you find yourself in trouble with your credit card debt, get help. Your family may be able to help you out, or you can talk to the credit card company or a nonprofit consumer credit counseling agency. Discuss your options, and listen to sound financial advice.

You can reduce your debt if you:

  • Stop using your credit card and don't sign up for any new cards.
  • Create a budget or spending plan and stick with it. Use the budget calculator to get started.
  • Call your credit card company to find out if they can lower your interest rate.
  • Pay off your credit card with the highest interest rate first, while continuing to make the minimum payments on other credit cards and loans.
  • Opt out of offers for new credit and insurance offers by calling (888) 5-OPT-OUT or visiting
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