By Deborah J. Sergeant
Buy now-pay later. It sounds like an easy way to get what you want now; however, buying on credit can easily rack up debt you cannot handle.
Even worse, many students graduate with a pile of tuition debt and make only an entry-level salary once they land a job.
Do your future self a huge favor by avoiding credit card debt.
• Understand how credit works. Credit card debt accrues interest differently from a car loan or student loan debt (both have “simple interest”). As you accumulate interest, you’ll pay interest on the interest. The minimum payment is usually enticingly low and affordable so it will take a long, long time to pay off your debt.
• Use credit only if you have a legitimate emergency. Do you really need that new phone, outing or clothing? Charging for things you cannot afford is a surefire way to rack up credit card debt you cannot handle.
• Open checking and savings accounts. Many online banks require little to open an account and even offer a small bonus ($5 or so). By setting aside some money, you should be able to cover most minor emergencies and a few wants now and then.
• Don’t open numerous accounts. It exposes you to temptation and can lower your credit score, since you could give in to that temptation. Many stores like to offer a discount if you open a store card. If you want the deal, go for it and then cancel the card after you pay off the charge and before you accumulate interest — or subsequent purchases.
• Pay off balances ASAP. Should you bite off more than you can chew, get that balance down as fast as you can by paying more than the minimum payment. Take on a temp job, sell off some stuff or borrow from your folks to pay it off.
• Consider a balance transfer. If you owe a substantial amount of credit card debt that you cannot repay within a few months, balance transfer can help you dig your way out of debt. But you have to exercise some newfound self-discipline to make it work. Open a new credit card that offers zero percent interest for a year or more. In the meantime, do not use credit. Divide the amount you owe by the number of months you have to pay it off. Pay a little more than that per month. This plan works because you pay no interest during that grace period; however, if you don’t pay off the balance, that interest rate will skyrocket.