Do Your Homework Before You Apply for A Credit Card

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Even adults trying to decipher the basics of interest rates can be a challenge. However, it is especially important for students getting student credit cards to understand exactly what they might end up paying in the long run, so they can make wiser choices.

Interest rates can vary considerably with credit card offers, so it is most important for students to read the fine print. Generally, interest rates range from between 7% to as much as 30.25%. On average, most student credit cards will begin with a lower interest rate, sometimes as low as 0%. Remember, that is just to start.

Even though low introductory interest rates will be appealing, after the introductory period ends (it usually lasts about six months) the interest rate can skyrocket to between 16 to 18%. In many cases, a consistent interest rate may be a better choice for most students.

Generally, some of the best student credit cards have a normal interest rate of around 15%. Students or their parents should select student credit cards with rates around this level or lower; otherwise, the student will be paying too much for their student credit card privileges.

Being in college and away from home will most likely be expensive. Extra costs for supplies, transportation, organizations, etc. always come up unexpectedly and can strain most students’ fixed income. For this reason, many students will choose to apply for student credit cards which are easier to obtain and which provide a safety net for these emergency expenses.

Applying for a student credit card is really quite easy as students generally do not have to meet specific income requirements. As long as they can prove they are a full time college student, they can usually obtain a credit card, although most credit limits are lower being around $1,000 or less initially.

While this lack of requirements may be viewed by some as maybe not such a good thing, it does provide students with a chance to establish a positive credit history. Otherwise, they would be faced with problems after graduation when trying to take out a loan or acquiring for a first credit card.

Another benefit is that students will most likely feel more independent. Instead of calling mommy and daddy again for extra money when necessities arise, the students can use their credit card to cover those expenses when needed.

Despite all of these benefits, student credit cards are not all perfect. Before completing a student credit card application, they should be aware of some basic facts.

Obviously, a student credit card must be repaid, but many people, including students, may not realize how quickly the cost of an item will increase because of the interest paid. If a student charges $1,000 on their student credit card at 18% interest during their time in school and paid $25 per month towards the balance, it would take 62 months – just over 5 years – to pay that debt off and the student would actually be paying over $538 in interest.

For this reason, students should be made aware to pay off their balances in full every month if possible. Never charge more than they can afford, to use their student credit cards only for emergencies, and to pay more than the minimum payment whenever possible. Otherwise, a student may graduate from college only to find himself or herself engulfed in debt.

The minimum payment on all credit card debt is calculated as a percentage of the current balance. The minimum payment drops as your balance gets paid, but thanks to the magic of compounding, you will end up paying for a long time.

Student credit cards.com @ May 30, 2008