Issue date: 4/11/07 Section: Features

Media Credit: From Google Images

I know I've recently been writing many columns on stocks and finance. You're probably asking me, "How am I going to invest? I don't have the money. And retirement is so far away." All of these comments are true, and this is why I am going to discuss more relevant personal finance issues that specifically concern college-age students.

So, the first personal finance issue I am going to discuss is credit cards. After all, the reason why many of you are so strapped for cash is because you have a big credit card bill lingering over your head, with large finance charges or interest expenses accruing.

Personally, I think it's a bad idea to get a credit card as a college student. While there are some positives to having a credit card, I believe the negatives outweigh them.

First, I think we should discuss the psychology that goes into having access to a credit card, and how it can get you into trouble. The psychology I am going to discuss may not be totally representative, but it probably has some applicability to students.

For example, whenever you go out, you know you have a decent line of credit you can spend. You begin making impulse purchases: a DVD here, a magazine there, an iPod accessory here. Nothing holds you back from making these purchases because you know that you won't have to worry about paying them until the bill comes. And when the bill does come, you only have to make the minimum payment.

This is the type of mentality that can get you into serious problems.

When you start racking up significant balances, the credit card companies really make you pay.

First, there are finance charges - the interest you accrue on your balance each month. This is calculated using your APR (Annual Percentage Rate), which is the annual interest rate charged by the credit card company to lend money. And when you don't pay off your credit card in full, you can really start racking up charges because compound interest can work against you, just like it works for you in investing.

For example, according to the bankrate.com credit card calculator, if you had a $1,000 balance and your minimum payment was 5 percent of the balance at an 18 percent APR, it would take you 70 months to pay it off, and you would wind up incurring $382.47 in interest!

Plus, there are late penalties if you miss a payment or go over your limit. The fees are very steep. Late penalties run around $35.

Continued...

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