To Give Or Not To Give: Credit Cards And College Kids

When your kid is about to go to college, you need to prepare them for a lot of changes and responsibilities. They will be living on their own while getting a higher education and you need to equip them with the right knowledge and skills that will teach them how to be mature adults.

One of the hardest lessons to teach is financial management. Even parents still have a lot to learn about it. The average American household is burdened with debt and you want to make sure that the future household of your child will not be part of this statistic. But to teach them how to avoid debt, you have to dangle in front of them the temptation of debt. And what better debt temptation is there than credit cards.

These plastic cards are one of the things that you have to entrust to your child before they go away to college. They need this to help finance their daily expenses and to help them build a good credit reputation. Some parents, especially those who are struggling with credit card debt themselves may be hesitant to pass on this problem to their child. However, if you do not let your children make their own mistakes, they will never learn the lessons that will make them stronger in the future.

Credit cards are the perfect way to teach your kids about proper financial management. It’s actually all about establishing rules about credit cards.

One of the important rules include who gets to pay for the card. This has to be very clear. You can ask your child to get a part time job to pay for the credit card. Or you can tell them that the payment should come from the allowance that will be coming from you every month. Teach them how to create a budget so they can learn how to live within their means. Make sure to teach them that basics of budgeting before they move away to college.

You also have two options in issuing credit cards. One is to co-sign it with your child and the other is to let them own the card themselves. Again, whatever you decide, make sure your child understands that any purchase on those cards will be on their tab. Be firm about not bailing them out if they rack up a huge debt in their cards.

Before you issue the credit card, make sure the following points are clear:

1. Purchases made on credit card uses the money of the credit card company - not your own. They need to pay it back.

2. Credit card companies are not patient when it comes to payments. The have to pay them at least the minimum amount and pay them on time.

3. Late penalty charges and interest rates are a waste of money so try not to add this to the balance. Learn about the billing cycle and the grace period to avoid incurring both.

4. Credit scores can be greatly affected by credit card use.

Trust your children when it comes to their financial decisions so that means you have to maintain a respectable distance. Do not make the decisions for them but make sure you are still near enough to remind them of how to make the right choices.

Of course, the best teacher is one who lives by what they teach. You cannot force your child to practice wise financial management if you do not implement it in your life.

Know What Your Credit Card Spending Is Robbing From You

It feels great to be able to purchase expensive items on credit but there are consequences to this luxury. We feel empowered and good about ourselves that we are able to afford that new HDTV or that new car model just by signing papers. But all of these will come back to haunt us in the very near future. This is a reality we all face with credit card spending if we fail to understand that impulse buying now is actually taking away more than what we are getting.

Think of the new shiny items you bought with credit as Dr. Jekyll and the interest payments as Mr. Hyde. It is the undesirable effect of advancing income to purchase items now. Also, every time you make payments to interest, think of the 20-5-20 theory. If you put $20 in a 5% earning instrument for 20 years, it could net you $8,000. What if you can put in double or triple that amount? This is one thing lost to credit card payment.

Another side effect of credit card debt is it prohibits you from getting that bigger house for a bigger family or better health or insurance coverage for your loved ones. The monthly payments make you think twice and could force you to pass up on better opportunities for your loved ones. Until such time that you could pay up your credit card payments, you have to put these dreams on hold.

This could also spill over to your dreams of getting higher education because you still have a big credit card payment. Again, it forces you to reconsider more spending even if it means advancement in your education. These payments also prohibit you from taking either a well deserved break for yourself or even with your family. You would rather make the payments over to your debt rather than use it for a vacation.

One serious downside to accumulating credit card debt is it s adverse effect on your dreams of early retirement. Instead of having enough in your savings to support your lifestyle, you are forced to make payments for your credit card over a longer period of time thus, delaying your retirement. Or worse, you might even be forced to come out of retirement so you can continue making payments on your debt.

There are people who are able to switch careers because they have a different calling or simply because they can afford to gamble on it. With credit card debt, your ability to gamble and look for a higher paying job is limited. This is because you need to have a steady stream of income to meet your payment deadlines. You might be forced to stay in your current job even if you do not like it anymore.

Credit card debts and the stress of meeting your monthly payments can trigger health issues. Anxiety, migraines and even depression are some of the effects of credit card debts. Some could even result to heart ailments. Worst part is that with these known side effects, you might even be exposed to high medical bills because you opted to forego health insurance in favor of credit card debts.

So the next time you decide to purchase an item using your credit card, weigh the value of the item you are buying on credit against the things you will have to let go in the future.

Things That Credit Card Companies Tell You That You Should Not Follow

Credit card companies are in it for the business so you need to be careful about what they say you should do with your credit card. Keep in mind that they want you to be in debt to them because that is how they will extract profit from you. There are many things that you should be cautious and vigilant about.

 

First of all, when you find yourself under a pile of credit card debt, you should not believe how your creditors want you to pay it off. We are talking of minimum payments of course. If you think that this particular method will get you by, then you are wrong. It will keep you from late payments - yes that is true. However, you will stay in debt for a really long time! And your creditors want that because the longer you stay in debt, the more interest you will end up paying for. That means more profit for them. So what you should do is to pay more than the minimum. If you cannot afford it, there are debt relief companies who can help make your payments more manageable so your limited income can accommodate all payments that has to be funded. Of course, another option apart from debt relief is to simply increase your income. That way, you have more funds for your debt payments without sacrificing your basic expenses.

 

Another popular creditor suggestion that you should ignore is getting a higher credit limit. This will put you in a deeper credit card debt pit so it is best for you to just say no. We all have the tendency to max out our cards without really thinking about how much we can really afford. If you know that you will be in danger of using your card up to its limit, then you need to make sure that the limit something that you can afford to pay off. That is your short term goal. However, your long term goal should be to remove that dependence on credit cards altogether. Develop the right habits that will help you live within your means. Paying for things in cash is not bad and when combined with budgeting habits, it will keep you from spending too much.

 

When you are convinced that you need to have at least one credit card to your name, make sure that you understand it completely. Know every fee, charge and penalty that can be imposed on you. Most importantly, you should understand the rules when it comes to your interest rates. It is confusing but you have to take time to learn it. You can call the customer support and ask them to explain it to you. Sometimes, credit card companies suddenly raise their rates and you want to make sure that you know about your rights when they do. For instance, the Credit Card Act states that creditors should send a notice before raising their rates. That way, card holders can pay off their balance before the new rate takes effect. Know these and you should be able to avoid wasting money on high interest amounts.

All in all, knowledge is your best defense when it comes to debt so read about it so you can make better judgments and decisions when it comes to getting yourself out of debt.