Credit Card Advice from the Wall Street Journal

The Wall Street Journal wrote a great piece entitled “Avoiding College’s Plastic Hangover” last week. I felt that it deserved a write-up on here because it addresses some really simple concepts that could potentially save graduates from piling extra debt on top of what they already have in the way of student loans. It has become next to impossible to fund four years of college without taking on some kind of student loan debt, and many would say that is not the worst thing that can happen. Student loan debt is often considered “good debt” because it usually has low fixed rates which if paid on time is likely to help your credit score instead of ruining it. Credit card debt, on the other hand, is what is considered to be “bad debt”. Rates are high, fees and penalties can be overwhelming, and they are just so easy to use that many times the spending gets out of control.
Here is a synopsis of the advice they give:

Don’t be lured in by free t-shirts.
Credit card providers will do everything in their power to hook the student into getting a credit card. Many attach a free gift or special offer and while that t-shirt of frisbee might look nice now, it isn’t worth the headache that a credit card will ultimately bring you. The most important thing to consider when applying for a card is the terms and conditions, not the free stuff.

Piggyback on a parent’s card.
This is a good idea on many levels. First, your parents will most likely have much better rates because they have a long history of established credit. Second, having your card tied in to your parents account gives them the opportunity to see how you are using your card. While that might not seem like a great idea, you will think twice before spending $200.00 at the local watering hole if you know your parents will see your bill.

Know your credit limits.
Usually credit limits are low when you get you first card. This is a good thing. It keeps your debt manageable, and allows you to start to build your credit score at an early age. Whatever you do, don’t go over your limit or you will pay some hefty penalties. Keep track of your spending.

Remember, promotional rates are temporary.
Just about every credit card offers a promotional rate for a fixed period of time to attract new customers. Do your homework and find out exactly how long, and then make sure you know what the APR will be set at after the promotional rate has expired.

Watch out for penalties and unnecessary fees.
The biggest pitfall with a credit card other than spending too much, is to have unnecessary fees added onto to your balance. These fees are most commonly associated with late or missed payments. In most cases, any missed payment results in a penalty plus a resetting of the APR to the highest possible rate.

My last piece of advice is to keep one card only. The more you have, the more likely you are to use them and confuse them. Keep it simple.