The Truth About Credit Cards

By: Tyler Dratch
Teen Money Master Intern

As a graduating high school senior, I have just started receiving the beginning of an endless trail of credit card offers. I know this is only the beginning because I have seen the numerous offers my parents who are a few decades older than me still receive on a regular basis. There is no question that a credit card provides its owner a great deal of convenience. A consumer can now make all purchases with one card, instead of having to carrying around large amounts of cash. A consumer can spend now and pay later, what could be better? These deals may sound great, but they come with responsibility and risk. The risk for a student entering college is even greater than normal since they could quite easily put themselves into credit card debt that they would be forced to pay off for the rest of my life.

There a many appealing offers and terms that credit card companies use to try to encourage you to use their card. Credit card companies use an introductory or “teaser” interest rate to attract you to sign up for their plan. These short-term “teaser” rates provide very low interest rates for the first six-months or year. After this time rates can shoot up well over double the introductory rate. It is important to understand all terms of your credit card before you start using it. Rates do not always stay the same during the entire term of your use.

Other credit cards offer special rebates or rewards for using their card. This could come in the form of cash back for each purchase you make, or points towards a special online rewards store. These plans appear as if the credit card company is giving you free money or gifts just for using their card, and on the surface this is true. What is important to understand, however, is that the value of these rewards Is much less than the amount in interest and late fees you will be required to pay if you can not pay your credit card balance in full each month. You must be sure that you can pay your monthly balance before you start spending big to get your airline miles, free rewards, or cash back.

Finally, credit card users must understand what the concept of a minimum monthly payment actually means. Almost all credit cards have a minimum monthly payment that must be made to the credit card company. Some card users do not understand what this means for their purchases. First time credit card users may think that if they make a $250 purchase on a credit card that requires a ten percent monthly minimum payment they would only need to pay $25 a month. This is true, but it does not say for how many months a payment of $25 must be made. Since interest will be complied onto your purchase each month the balance is not paid, some of your monthly payment will be used to pay down the ever-increasing interest. It will take more than ten months to pay the $250 bill when interest is added. The problem compounds if one monthly minimum payment is missed. Most credit cards reserve the right to raise their interest rates even higher if a monthly payment is missed. That $250 purchase continues to become more and more expensive as you are forced to pay increasing interest.

As I continue to compile these credit card offers, I know that the terms of these deals would require me to use discretion and restraint when using them. The best bet for a college student is to use no more that one or two credit cards and to ALWAYS pay off the balance in full. At a time when I am saving for college and planning for the future the worst thing I could do for myself is get into credit card debt. There are so many credit card options with some that are much better than others. Choose Wisely!