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Tips for Using Credit Wisely
Julia was a 19-year-old college sophomore when she got her first credit card application in the mail. The campus post office floor was littered with them. Most of her friends already had their own credit cards. She envied how they could use their credit cards to be able to buy things when they wanted them – like a new outfit, pair of shoes, or a night out with friends. The best part about the application is that she didn’t need her parents’ signature – it was her own decision and her own account! It seemed like a relatively low credit limit - $1,500 – how much trouble could she get in if she used it carefully and paid it off?
Fast-forward 12 months. Julia has maxed out that first credit card and owns 2 more cards now, each carrying a balance. The total amount Jennifer now owns on credit cards? $2,100. She pays a little off every month, but it’s getting tight to even pay anything above the minimum amount due.
Julia’s not alone. According to Nellie Mae (a company that funds and services undergraduate and graduate student loans nationwide) 78 percent of all undergraduate college students (ages 18-25) carry at least one credit card with an average balance of $2,748. What does that mean long-term? If someone is carrying a credit card with a balance of $2,748 at 18 percent interest and makes the minimum payment of between 2-3 percent it will take more than 15 years to pay that card off. And that’s assuming that the cardholder doesn’t make any additional charges!
So what’s the bottom line on credit cards? Are they good? Bad? Read on for some helpful tips on how to think about and use credit cards.
NEXT: How to Think About Credit Cards
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