When college freshmen first enter a college campus, they are bombarded with companies offering credit cards. In the last issue, I wrote about the importance of saving money. However, one thing that can hinder our ability to truly save money is extreme credit card debt. Credit card debt is something that many people struggle with.

One advantage of credit cards is that they help build credit. Credit is important for various reasons. Credit helps you get an apartment, loans, cars, lower payments, any many other beneficial things we would call necessities. Not having credit can be just as bad as having poor credit.

But credit cards can be costly. Credit cards are very expensive because they buy time. You can buy something today and not have to pay for it until later. Time is charged in the form of interest. Interest rates on credit cards will rise if one does not pay the monthly payment on time. Not paying the monthly bill will also affect your credit rating. This will affect your future, because your credit score is used to determine your eligibility for home loans and business loans. Most students tend to forget that what they do today has a great effect on what they can do in the future.

Because of the high interest rate, pay credit card debt off first and you will have more money to save. Most student credit card offers, have high interest rates. This is because college students are a high credit risk, meaning they are more likely not to make regular payments. Therefore, the student gets a credit card unaware of the dilemma that could be ahead. If possible, pay your balance monthly to avoid high interest payments. When you don’t pay your balance in full at the end of the month, the remaining balance is financed and the interest amount is added to the balance.  For example, if I have $1000 balance on my credit card and I pay the monthly payment of $20, my remaining balance is $980. Even if I do not make any purchases on my card that month, $980 will still be given the monthly finance charge of .02 percent. In the end, my next month’s balance will be $999.60. The monthly payment is usually the finance charge or interest your card has accrued. So you’re not lowering your debt by paying the monthly payment alone, you’re just maintaining debt. If you start putting in a little extra money along with your monthly payment, it will lower your monthly payment and balance.

I recommend that everyone have a spare credit card for emergencies. I found this to be true when I moved back to the U.S. from Paris and came across unexpected luggage fees. I had never in my life been so grateful for a credit card. But remember, an emergency does not mean having to buy a new outfit for the party tonight. If you don’t think that you are discipline enough to have a spare credit card and not use it, consider opening an emergency bank account and try to fund it as much as possible.

Credit card debt is something that I struggled with while I was in my undergraduate studies. It was a never ending cycle. My parents would pay the debt off in full and I would max it out again. I didn’t like debt but I couldn’t control my spending. By grace, I finally broke my spending habits. If you are struggling with credit card debt, I want you to know that it can be beat, but it takes discipline and self control.

If you have any financial questions please contact Shavon at SMagee@b-now.com