MONEYWISE
Your Money
What every college student needs to know about credit cards
By Lois Barrett
Shaz Jumaralli was only four months into her sophomore year of college, but she had already accumulated $3,500 in credit card debt. At first, having a credit card seemed reasonable, even necessary, for the 19-year-old student. She had planned to use it to pay for meals until the university meal plan kicked in each semester. But Jumaralli's good intentions went awry once she had that "plastic" in hand. Jumaralli ended up working two jobs to pay off the debt.
Admirably, Jumaralli cleared up her balance while still in school. Many students, however, end up graduating with inordinate credit card debt on top of student loan burden. Financial experts caution that college students in particular must understand that credit cards are not "free money," and that every time they charge an item, they are in fact receiving a very expensive loan.
Before filling out a credit card application, every college student should take advantage of personal finance workshops on campus or nearby. Books such as Sanyika Calloway Boyce's Crack Da Code: What Every College Student Needs to Know About Money, Love & the Dream Job (Smart Concept Books Publishing; $14.95 and Websites such as Cardratings.com can also help build knowledge.
When Jumaralli began shopping for her card, she did do a lot of things right. She checked to see if annual percentage rates were fixed or variable. She also checked the default rate -- the rate customers pay if they miss a payment.
Understanding the basics of money and credit management is a must before obtaining a credit card. Here's what you need to know before filling out a card application or accepting a pre-approved offer:
The interest rate: Although students often qualify only for student credit cards, which traditionally have higher interest rates, they should still shop around for the best deal. According to Cardweb.com, low-interest-rate cards currently carry APRs below 14%.
The introductory rate period: That initial low rate could expire in mere months. Know the jump rate -- the rate the card will jump to after the introductory rate expires.
The default rate: Credit card interest rates can often skyrocket because of even one late payment. Jumaralli's credit card had a fixed APR of 9.99% but shot up to 23.99% when she missed payments.
The annual fee: Students should choose a card with no annual fee.
The credit limit: Cards with low limits -- no more than $1,000 -- help students avoid the temptation of overspending. Keep the limit low by not accepting periodic limit increases.
Consequences can be grave for college students who can't control their spending. Bad credit can affect the ability to obtain a loan, apartment rental, or job. More and more companies run credit checks on prospective employees. To graduate from college with little or no credit card debt and an excellent credit history, MetLife financial planner Robin Vetere suggests charging only necessities, such as school supplies and books, not clothes, bar tabs, vacations, or other discretionary purchases. Also crucial is paying the bill in full and on time every month.
Showing posts with label saving. Show all posts
Showing posts with label saving. Show all posts
4.21.2007
2.14.2007
The Invisible Rich
The biggest barrier to becoming rich is living like you're rich before you are.
By Knight Kiplinger
This question has been asked to high school teens :
"When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?"
The answer: "He's rich."
-"And a man who drives by in a ten-year-old Chevy? "
"He's struggling."
Elusive realities. Just the answers I was looking for, and they provided a launching pad for a lively discussion of deceptive appearances and realities. By the end of it, these teens had a clearer sense of how little you can determine about wealth from a person's visible consumption.
The BMW, I noted, is probably leased (perhaps for three years, no money down), so we can infer only that the driver earns enough to handle a $1,131 monthly lease payment. We know nothing about his net worth, which may be great ... or may be almost nonexistent.And the man in the old Impala? Maybe he is struggling financially, but there's another possibility: His income is just as great as that of the dude in the Bimmer, but he's not saddled with a lease payment -- and he's investing the money in mutual funds that are growing at 10% a year.
The message in all this: The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday.
I often hear complaints from young adults, twentysomethings to those in their early thirties, that they'll never be able to buy a home because they can't afford the down payment. But when I probe them about their budgets, I find that they earn enough to make a down payment in just three or four years -- if they cut back on their spending, and if their starter-home expectations are reasonable.Know who grasps this best in American society today? Recent immigrants, whether they're from Latin America, Africa, Asia or Eastern Europe. Many of them come to the U.S. almost penniless. They work long hours at modest wages and send some of those earnings to relatives back home. But, miraculously, they still have money left over each month because they live simply. Often they double up with friends and family in crowded housing.What do they do with their savings? They buy a home, often in a less desirable neighborhood that other strivers are leaving behind. They fix it up, rent rooms to friends and relatives, and then trade up to a nicer home. They may keep their first and second homes as rental properties, becoming hands-on landlords.
A niece of mine sells new homes in the outer Virginia suburbs of Washington, D.C. The houses cost $500,000 -- a "middle market" price in this affluent area. Many of her buyers are Latinos. They don't look or act rich, and they often need translation help. Many of them arrived in the U.S. with nothing but ambition. They worked hard, started small businesses and saved 30% of their incomes.Someday, when they finally feel as financially secure as they will actually be, they might start living it up. They might buy -- not lease -- a BMW, most likely a used model. High school kids will assume them to be rich and cast admiring glances at them and their fancy cars.
Proudly invisible but just like overspending, the habit of frugality is hard to break. Maybe these folks will just keep the old Chevy. They will remain proud members of the Invisible Rich -- a growing army of super savers whose net worth is more impressive than their income. They'd rather live within their means, sleep well and forgo the covetous attention of their fellow citizens. Not a bad way to live at all.
By Knight Kiplinger
This question has been asked to high school teens :
"When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?"
The answer: "He's rich."
-"And a man who drives by in a ten-year-old Chevy? "
"He's struggling."
Elusive realities. Just the answers I was looking for, and they provided a launching pad for a lively discussion of deceptive appearances and realities. By the end of it, these teens had a clearer sense of how little you can determine about wealth from a person's visible consumption.
The BMW, I noted, is probably leased (perhaps for three years, no money down), so we can infer only that the driver earns enough to handle a $1,131 monthly lease payment. We know nothing about his net worth, which may be great ... or may be almost nonexistent.And the man in the old Impala? Maybe he is struggling financially, but there's another possibility: His income is just as great as that of the dude in the Bimmer, but he's not saddled with a lease payment -- and he's investing the money in mutual funds that are growing at 10% a year.
The message in all this: The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday.
I often hear complaints from young adults, twentysomethings to those in their early thirties, that they'll never be able to buy a home because they can't afford the down payment. But when I probe them about their budgets, I find that they earn enough to make a down payment in just three or four years -- if they cut back on their spending, and if their starter-home expectations are reasonable.Know who grasps this best in American society today? Recent immigrants, whether they're from Latin America, Africa, Asia or Eastern Europe. Many of them come to the U.S. almost penniless. They work long hours at modest wages and send some of those earnings to relatives back home. But, miraculously, they still have money left over each month because they live simply. Often they double up with friends and family in crowded housing.What do they do with their savings? They buy a home, often in a less desirable neighborhood that other strivers are leaving behind. They fix it up, rent rooms to friends and relatives, and then trade up to a nicer home. They may keep their first and second homes as rental properties, becoming hands-on landlords.
A niece of mine sells new homes in the outer Virginia suburbs of Washington, D.C. The houses cost $500,000 -- a "middle market" price in this affluent area. Many of her buyers are Latinos. They don't look or act rich, and they often need translation help. Many of them arrived in the U.S. with nothing but ambition. They worked hard, started small businesses and saved 30% of their incomes.Someday, when they finally feel as financially secure as they will actually be, they might start living it up. They might buy -- not lease -- a BMW, most likely a used model. High school kids will assume them to be rich and cast admiring glances at them and their fancy cars.
Proudly invisible but just like overspending, the habit of frugality is hard to break. Maybe these folks will just keep the old Chevy. They will remain proud members of the Invisible Rich -- a growing army of super savers whose net worth is more impressive than their income. They'd rather live within their means, sleep well and forgo the covetous attention of their fellow citizens. Not a bad way to live at all.
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