Talk to an advisor (9 AM-9 PM EST): 866-442-6062

Talk to an advisor (9 AM-9 PM EST): 866-925-2803

Credit card companies want you. That's right -- you, a young spender who can swipe magnetic credit cards faster than your dad can flip open his billfold.

The average outstanding balance on undergraduate credit cards is $2,169, according to a report issued in 2005 by Nellie Mae, a top originator of student loans and a leader in helping students manage debt. A large number of students enter college already in debt. Significantly more leave campus in serious financial trouble. The culprit is the misuse of credit.

The same old principles of effective money management apply to the use of credit as well. First, you must set up a budget and track your expenditures. "You have to be disciplined about your money and never spend more than what your weekly or monthly budget allows," says Kathy Griffin, founder of Money U (www.moneyu.net), an online campus for personal finance. Griffin suggests that if your parents can't help you set up a budget, you should go to another trusted adult or experienced friend who can help you put together a realistic plan to guide your college spending.

Once you've created a budget, use these tips to boost your credit IQ and manage debt.

Debit before credit.
"Teenagers really need the experience of using prepaid debit cards before jumping in with both feet and using credit cards to make purchases," says Jon Gallo, co-author of "The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children" (New American Library/Penguin Group, 2005).

Prepaid cards like the Mio Money Prepaid MasterCard, the Visa Buxx card, or the Travelers Cheque Card from American Express are "loaded" with a fixed dollar amount, similar to a gift card. These cards will help you learn where your money goes and how to track your spending without the risk of falling into debt.

Learn how credit works.
"Because you are going from something concrete, like dollar bills in your pocket, to something nebulous, like credit, it can be very difficult to understand," says Eileen Gallo, co-founder of the Gallo Institute, a national organization offering education and counsel to families and financial advisors on the issues of families, children and money.

If you end up with $1,000 on your credit card and you make the minimum payments, it's going to take you 13 years to pay it off (assuming an 18 percent interest rate). By that time, you will have paid $1,100 in interest. "What many people don't understand about credit is that the interest you end up paying costs you more than the actual things you originally purchased," Gallo affirms.

Understand the credit card lingo.
If you're thinking about getting a credit card, you need to be familiar with credit terms. "If you don't know what APR is or you've never heard of a 'grace period,' you need to find out what those terms mean before you even apply for credit," Griffin advises.

Most students have some cursory knowledge of credit, but many don't understand the finer nuances of credit management. Take interest rates, for example. "I think most students know that an interest rate is a certain percentage of the total, but I don't know if they understand where to apply it and when to apply it -- like does APR come into play if I only pay the minimum amount due, or does it always apply?" asks Evan Shulman, a sophomore at the University of California, Los Angeles.

Interest rates on credit cards may differ depending upon how you use your credit card. For example, there may be one interest rate when you use your card to make purchases and a different interest rate if you use your card to get cash advances. There are also tiered, penalty, introductory, delayed, fixed, and variable APRs. You really need to read your credit card agreement carefully so that you understand these differences.

Shop around for a good credit card.
Not all credit cards are the same. Some have higher interest rates but no late payment fees. Some have a long grace period (the time in which a debt may be paid without accruing further interest or
penalty) for those who forget when their bill is due. However, these cards are harder to get if you don't already have credit established. You need to determine what your needs are and find the credit card best suited to you.

Eduardo Rivera, an 18-year old freshman at the University of Maryland (College Park, MD), says that after doing some careful research, he still doesn't know which credit card is best for him. "I go on the Web sites for MasterCard and VISA to see what they have to offer, but it's hard to know which one offers the best deal," Eduardo says.

Are you going to carry a balance? If so, you'll want a credit card with the lowest interest rate you can find. Do you often forget to pay your bills when they are due? Then opt for a penalty-free card that allows for some payment flexibility (within reason). And, if you plan to pay off your bill in full every month, choose a card with no annual fee, even if the APR is higher.

Set your own limits.
Determine what you will use the credit card for. Maybe you'll only buy your textbooks on credit. Or maybe you'll charge your groceries. Whatever you decide, stick to it and pay off all the charges at the end of each month.

Eduardo says that he knows a lot of students who spend money without even realizing that they're approaching their credit limit or charging things they don't really need. "One friend just told me he blew $60 at a bar last night and didn't even realize it," he says.

Reconcile your undergraduate credit monthly, if not weekly!
"I know when my credit card bill is due, and as billing statement day approaches, I go online to reconcile my accounts," says Evan, a credit-savvy teen who has managed his money since elementary school when his parents first gave him an allowance. He manages his tuition and housing expenses online and pays all bills off at the end of the month. Because he has enough to cover these expenses in his bank account, it's not a problem. In fact, it's helping him build an attractive credit rating, which will be important if he ever needs to apply for a loan.

Evan says it's important to keep track of everything you charge and how much you have in your account to pay it off. Once you learn how to do it, it doesn't take long. "It usually takes me 10-30 minutes twice a month to reconcile my accounts," he says.

Learn to delay your own gratification.
Make a deal with yourself that you'll never charge an item greater than $50 without thinking about it for at least 24 hours. The Gallos call it the "stop and think" plan. "Students need to 'stop and think' about whether they really need the item they want to buy and if they can afford it," says Eileen Gallo.

That can be difficult when all your friends are headed off campus to a great pizzeria. "Food is a very easy way to get into trouble with spending too much money," says Marisa Chien, a sophomore at UCLA. There's really no need to spend money on food since most students have a prepaid meal plan, but Marisa says that doesn't stop her friends from going off campus to a restaurant or ordering takeout.

Read the fine print.
Make sure you understand the terms and conditions of the credit card agreement. Evan is quick to point out that he often sees credit card company ads that read "0 Percent Interest" in big, bold print. "If you look at the fine print on the back, you'll see that the 0 percent APR only applies until your first statement arrives," he says.

Only you can decide if having a credit card is right for you. Take a good look at how you will use the credit and think about how you will manage the extra financial responsibility. If you decide to start swiping, be sure you have the money in the bank to pay it off.

Sound Off! Post Your Comments