Plastic Generation

what to know before getting a credit card

by Elizabeth Focht

Who knew a tiny piece of plastic could affect someone’s life so much? The effects can range from creating strong credit to falling knee deep in debt. Yes, credit cards open a whole new world to their users. Ideally, that world involves good credit, smart spending and responsible lessons. On the flip side, if people are spending more than they can afford, the plastic world can come crashing down on them.

Our generation of 18- to 24-year-olds has been referred to as “the cellular generation,” “generation Y” and the “digital generation,” but with such frequent and sometimes careless credit card use, our generation could very well be considered the “plastic generation.”

Credit card use has skyrocketed recently, because it’s easy and fast to hand over a card when making purchases since people don’t actually see the cash they are spending. The idea of spending money and not having to pay it back until later is an appealing concept to a lot of young shoppers.

This year the Federal Reserve Bank reported that American’s credit card debt totals $880 billion. This number has increased 100 fold in the past 40 years. Something to consider when swiping the plastic: “caveat emptor,” Latin for “let the buyer beware.” Even just charging a meal here and there can add up – of that $880 billion, $51 billion was spent on fast food alone.

Even though the expenses can add up, getting a card can be a great way to build credit, as well as personal reponsibility.

“A credit card should be used as a tool to build credit, not a secondary spending option,” said Doug Schliecker, senior retail supervisor for CSU’s First National Bank branch.

Michael Williams, a senior social sciences major, said the reason he opened his Wells Fargo Visa card was to build good credit for purchases later in life.

“I want to buy a car one day, and you have to have good credit to do that,” said Williams, 23.

In order to keep his credit up, Williams pays at least double the minimum payment each month, which is a very smart idea. Paying just the minimum amount each month could take years to pay off the balance. The “minimum payment trap,” as Sara Allen, executive director of the Consumer Credit Counseling Service of Northern Colorado (CCCSNC), described it, usually gets college-aged spenders.

“When you’re paying the minimum balance each month, you’re really just paying the interest rates,” Allen said.

If someone with $1,000 on his or her card paid only the $25 minimum amount due each month, it would take nearly 13 years and $1,115 in interest rates to pay off a card with an 18 percent average percentage rate (APR), according to Bankrate.com.

APR rates have risen slightly the past few years, according to Allen. A 15 percent to 22 percent APR is what to look for, and avoid paying more than that. Allen said the two fees that affect college students the most are late fees and over-the-limit fees.

It is very important to pay credit card bills on time. Late fees can add up fast, and just one late fee can put a kink in your credit. In May 2007, Bankrate.com researchers surveyed the top 20 credit card issuers and found that the average late fee out of 139 different cards was $39.

It’s also important to notice the due date of your bill. If the date falls on a Sunday (when banks are closed) your bill needs to be received before the due date. The optimal time to send bills is ten days to two weeks before it is due.

Late fees go hand-in-hand with over-the-limit charges. If there is a $1,975 debt on a card with a $2,000 limit, spending $39 on a late fee would put your total due over the allowable limit. Instead of canceling the card when more than the limit is spent, the credit card company can slam the consumer with a charge. IndexCreditCards. com found the average over-thelimit charge to be around $32, and most are in the $29 to $39 range.

Another thing to be wary of is a bill payment fee. That’s right; some banks actually charge you for paying your bill online or over the phone. These fees are usually only $5 to $10, but spending money to pay a bill is a big inconvenience for a lot of people and unnecessary since mailing the payment is free. aside from the stamp.

As if paying all those fees in addition to your balance wasn’t enough, the actual amount you are paying can increase if you miss just one payment. The Universal Default Clause, a provision found buried in fine print in credit card agreements, says that if you are more than 30 days late on any payment to anyone, the interest rate on your credit card could rise and your credit score may be damaged. This means that if any late payment on a phone, medical, insurance bill or any type of credit occurs, the credit card company can look that up in a credit report and increase rates.

Other fees to look out for are start up fees, annual fees, balance transfer fees and transaction fees, all of which vary depending on the card you choose. Most offer new customer deals, like zero percent APR for the first year. It’s crucial to read the small print to know what you’ll be paying after that six or 12 months is over. Some rates jump to nearly 20 percent after that initial period of time. A 2006 survey by Braun Research said that 33 percent of consumers don’t read or understand the terms of their credit cards.

Banks also have gimmicks to attract new customers, and there are many deals that cater to students. Kristin Davidson, 20, an open option junior, got her Wells Fargo Visa for one reason – the free stuff.

“They were giving out free snowboard passes if you opened a card,” said Davidson.

In addition to offering free gifts for opening an account, credit card companies pair up with retailers like Amazon and Starbucks to entice students to use their card for reward points.

There are even credit cards made specifically for students. Chase offers a “Chase +1 Student MasterCard” that lets students earn reward points, or “Karma Points,” that can be used to purchase DVDs, music and electronics on Facebook.

Credit card companies want to appeal to college students because they are generally loyal to the company they choose in college. Student cards often offer lower APR rates than other cards to be more appealing. First National Bank, located on the main level of the Lory Student Center, offers cards with APR rates no higher than 14 percent.

Some students get credit cards to use in emergency-only situations. But how hard is it to fight the temptation of spending on non-emergencies? Anthony Mejia, a junior psychology major, said he got his student Visa card to use only when absolutely necessary, like paying for repairs when his car broke down.

“I have only spent money twice on non-emergencies,” said Mejia, 20. “Two trips to California.”

Despite straying from his emergency-only rule, Mejia, who works as a bank teller at First National Bank, said he is responsible and uses his card “wisely and sparingly,” and pays more than the minimum payment each month. He even leaves his card at home sometimes to prevent careless spending.

Students should also beware of pre-approved credit cards. Those enticing envelopes that appear in mailboxes every so often aren’t all they are cracked up to be. The “great deals” these cards promise, like zero percent APR or no annual fee, usually end after six months or a year. After that initial period you can get slammed with extra expenses described in the fine print. These days the fine print can be several pages long, so it’s important to know what strings are attached.

One thing for people to remember is to only spend what can be paid off. Careless spending and not thinking about the repercussions could turn us from generation plastic to “generation debt.” Something to keep in mind next time you swipe.