MONEY MATTERS FOR KIDS Special Features, prepared just for students, will be highlighted in this section and updated on an ongoing basis. They will refer to issues and topics covered in the MONEY MATTERS FOR KIDS seminars.

WHAT ABOUT YOUR CREDIT CARD?

Is it the best one for you? Do you know the differences between various credit cards? Have you read all the tiny print that explains the payment terms, conditions, and late payment penalties for which you are responsible?

Shopping for the right credit card is an important and easy research project well worth your time. First, you’ll need to consider how you will use your card. Then you’ll have to consider interest rates and payment cycles, transaction fees, card fees, the impact of multiple APRs, how finance charges are calculated, your liability limits and how billing errors are handled, differences between charge cards and debit cards offered by various providers, among other things.

The Federal Reserve Board offers excellent information to help you understand how credit cards work and gives you everything you need to know to choose and use the credit card that’s best for you. Log on to their web site: www.federalreserve.gov and go to the tag for Consumer Information and explore! Consumer’s Guide: Credit Cards is a good place to start. Then click on Learn More About... for much more useful information you will want to know about Options, Interest Rates, Fees, Lost or Stolen Cards, Billing Errors, General Complaints, and Managing Your Credit.

The most important thing to remember about credit cards is that the credit they offer isn’t free. It’s actually very expensive. The interest rates charged on unpaid balances are often as high as 18% to 28.99%. If you do not pay your credit card bills in full every month you risk accumulating credit card debt, traditionally the single biggest obstacle to saving.

 

YOUR CREDIT CARD BALANCE: THINK OF IT THIS WAY

Congratulations! You’re a freshman at college and from the many credit card offers you’ve received, you’ve chosen one. Let’s say you’ve bought all the text books you need for your first semester classes, you’ve paid some additional lab fees, bought some new clothes, and perhaps even treated yourself to a new computer and a fabulous sound system for your dorm room. Your parents have helped as much as possible but they expect you to pick up the difference between what they could contribute and what you actually spent.

Bottom line: you have a balance on your credit card of $1,000.

The calculations below assume:

1. you make no more charges on your card; and
2. you plan to make only the minimum payment on time each month

 

Minimum Payment	Interest Rate	Amount of time to pay off your balance	Interest charges you will pay in that amount of time
$ 20	14 %	6 years	$ 510
$ 20	18%	8 years	$ 863

 

At 14% interest it will take you 6 years to pay off your debt – and you will have actually spent 51% more than the actual amount you spent.

At 18% interest it will take you 8 years to pay off your debt – and you will have actually spent 86% more than the actual amount you spent – almost twice what you originally spent.

If you don’t pay your monthly bill on time, your interest rate could balloon to 28.99% – and with only minimum payments and no additional charges you would not be able to pay off the debt in your lifetime!

Lesson: Pay your credit card balances in full every month!