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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.
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