Sweater at Abercrombie, $80; rent, $630; biology book, $160; a quick burger and fries, $9; paying for it all on your credit card, disastrous.
Vicki Brown, Kern Schools Federal Credit Union Branch Manager, said that many college students abuse their credit cards by using them to buy everyday items instead of using a monthly budget to prepare for those common costs.
According to author Janet Bodnar in her book “Mom, Can I have That?: Dr. Tightwad Answers Your Kids’ Questions About Money,” there are three stupid college tricks.
The first is treating the gang, which is when you are out to dinner with friends and you pick up the tab and collect cash from everybody else. Instead of using the cash to pay off the credit card bill you spend it.
The second is digging a hole, where you rack up a big balance and then make only the minimum payment, which makes it nearly impossible to ever get out of debt. The third is letting things slide, like not making the monthly payment on time, which can stay on the credit report for years.
Instead of using a credit card that will accrue finance charges, Brown suggests depositing money, making a budget and using a Visa Check Card. According to Brown, “When you open a checking account you are given a check card and you can use it anywhere.” Brown said that it is also a great tool for learning how to budget.
According to a pamphlet that can be found at Kern Schools Federal Credit Union, “Budgeting doesn’t mean having less; it means doing more with what you have.” They said that the first step in creating a budget is to not have any surprises. They suggest using your share draft register, checkbook and current bills to help jog your memory on what you spend your money on. They said to “include an entertainment category – fun and luxuries. If your plan doesn’t make room for fun, you’ll soon abandon it.”
They also suggest analyzing your expenses by gaining some perspective on the smaller purchases that you make. “Say you spend $1 each day to buy two cans of soda at work [or school], that’s $5 a week, $250 a year.” If you seem to be spending too much money on food, they suggest you ask yourself how much food you waste, and perhaps try planning menus and then making shopping lists.
Brown said that they are beginning a weekly presentation with students from EOPS and the CARE group on having a checking account, how to update and use a check register and to answer any questions they may have.
Brown said that many students claimed they didn’t have any credit, and some students believe that the only way to gain credit is to apply for store credit cards, which tend to have a higher interest rate, said Brown.
Brown suggested that students trying to build credit stop by a credit union and apply for a Student Visa card. Student Visa cards can start at a $500 credit limit with a much lower interest rate than most places. Most students will be approved as long as they have a means to pay it back and don’t have a long history of bad credit. “We like to tell students that they don’t need a Visa from everybody, as long as they have one good one they can use it everywhere.”
She doesn’t recommend getting one credit card to pay off another card. They will just keep getting you deeper and deeper into debt. In stores they often have credit card pushes where they offer a 15% discount if you open an account with them today. You have to ask yourself how much did you save with that 15% off, was the dollar amount that you just wanted to pay cash for, that you were just going to pay cash for, was the savings enough to get the credit card.
When students don’t have a budgeting plan they can end up racking up more fees than they can afford. Brown said that when a person goes over the limit on their checking account, whether it be bouncing a check or over spending on their Visa Check card, the fee at KSFCU is $23 for each failed transaction, and in October it will be going up to $25. “If you buy a $4 cup of coffee and you get an NSF fee, that cup of coffee can end up costing you $27!”