Managing credit

Dorothy Camp, a senior at Thiel College in Pennsylvania, found herself in serious debt within four months of opening a credit card. She spent money every weekend when she went out with her friends and lost track of what she spent. By her second monthly bill, she owed $2,000 and couldn’t even make the minimum payments. “I had collection agencies calling me and threatening me, and I didn’t even understand what was going on,” she says.

You’ll be entering college soon. So whether you have a job or are relying on your parents for cash, you’ll have to learn how to budget. You’ll need money to fill up your car. You’ll need cash for food when your meal plan just won’t cut it or your appetite calls for something outside the dining hall. And if you’re planning to hit up a new flick or go out on the town, that’s going to cost you, too.

But what happens when something comes up for which you didn’t expect to have to pay? What if your car breaks down late at night? For emergencies like these, a credit card can be a lifesaver. But with a credit card comes a great deal of responsibility. What looks so convenient about a credit card can actually get you in a lot of trouble.

Rick Ross, a financial advisor at M&T Bank, says that the biggest risks are how quickly you can get yourself into debt and how difficult it is to get out of it. Before considering a credit card, look over the answers to these frequently asked questions from Cardweb.com.

What is a balance? A balance is the amount of money you charge on your credit card between billing cycles.

Do I have to pay off the entire amount I spend every month? No, but it’s a good idea. Each month, you are only required to pay a minimum payment, usually around $10 to $20. But the less you put toward your balance, the more you’ll owe in the long run. Credit cards charge you interest on whatever balance remains at the end of each billing cycle. If you pay only the minimum amount, Ross says, “you can actually end up paying more than the item’s original amount.”

How can I build good credit? When dealing with credit cards, it is most important to keep your balance manageable. Make sure you can pay your balance off every month on time, which minimizes the amount of interest you’ll pay. Ross says that using a debit card is a good way to start building credit habits. A debit card is tied to your checking account, so you’re withdrawing cash from the bank instead of using credit when making purchases. A debit card can help you learn to budget without letting shopping impulses cost more than they’re worth. Remember: Credit cards are loans. You’ll have enough loans to pay back from going to college. So don’t get yourself into more debt than you have to now!

Tiffany Buk is a senior at St. John Fisher College in Rochester, N.Y., and an intern for The Next Step Magazine.

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