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Credit Cards

CHARGE IT!  Wait! Hold on a minute! “Charging it” is NOT the right answer unless you can afford to pay the balance in full when the bill arrives.

Let’s be realistic and say you charge $500 in back-to-school purchases. Your credit card’s interest rate is at 18%. You make the minimum payment of $10 per month. In this particular scenario, it would take you nearly 5 years to pay off your shopping spree, and you would pay a whopping $215.67 in interest charges alone.

Believe it or not, the average college student has more than $2,200 in a revolving credit card balance and pays approximately $355 per year in interest. And that’s just the beginning! According to RAM Research, Americans charged more than $400 billion on their credit cards last year and paid a whopping $50 billion in finance charges. (We’re not talking pocket change anymore!)

Sallie Mae offers the following tips for credit card holders:

  • Limit yourself to only one low interest rate card. Limit card use for emergencies only.
  • Don't accept increases in your maximum charge limit--keep it modest.
  • File the card in a safe place where it's not easily accessible for impulse purchases.
  • Avoid the interest expense by charging only what you can afford to repay in full each month.
  • Use the "Do I need it, or do I want it?" test. If you don't absolutely need it, don't charge it.

If you remember that your credit card is a convenience and not a source of extra money, you should remain in good financial shape.

Last Reviewed: November 30, 2004