Myths & Truths of Credit Cards. Emily Burris Hester, Coordinator Student Financial Management Center

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1 Myths & Truths of Credit Cards Emily Burris Hester, Coordinator Student Financial Management Center

2 Student Financial Management Center Basement of Coates Hall B4A Coates Career Services Purpose To provide financial literacy education through campus outreach Evaluate student s financial challenges & provide applicable information on subjects Provide resources to LSU students to help them make healthy financial decisions. Empower LSU students through financial education

3 So, the SFMC can help through One-on-one appointments discussing budgeting, money management, student debt, credit cards, etc. Resources available at such as downloadable budgets, calculators and articles Workshops and presentations

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8 Myths & Truths Myth #8: I ll pay my credit card off when I get a job [raise, whatever]. FACT: Americans are LOADED with credit-card debt. According to one study, the average credit card older rolls over approximately $3,900 in debt per month. Myth #7: My minimum payments will soon pay off my debt. FACT: If you just pay the minimum due on credit-card bills, you ll barely cover the interest you owe, to say nothing of the principal. Myth #6: But I ve got this really low interest rate! FACT: Credit card companies often lure customers in with a low interest rate as an introductory rate, and after three months the rate goes up.

9 Myths & Truths Myth #5: I know I ll always be able to pay off the entire balance each month. FACT: Credit card companies prefer customers who do NOT pay off their balances each month, so they often reward customers by increasing their credit limits. Myth #4: I ll only use my credit card for emergencies. FACT: Credit cards are rarely only used in actual emergencies. More often than not, the first credit card is used for non-emergency items. And due to the ease of use, it is easy to run up a debt and/or get more credit cards.

10 Myths & Truths Myth #3: Closing accounts will help my credit score. FACT: Closing accounts can never help your credit score, and may hurt it. It's true that having too many open accounts can hurt your score, but once you've opened the accounts, you've done the damage. Myth #2: Checking your credit report will hurt credit score. FACT: Ordering your own credit report/score has no negative effect. It s when you apply for new credit (e.g. a home/car loan or new credit card) when your score could take a hit. Myth #1: I m building good credit! FACT: You may also be destroying your credit score!

11 Credit Card Stats In 2004, the average credit card debt for undergraduate students was $2,169. In 2008, that number rose to $3,173. Some studies show that more students drop out of college due to credit card debt than due to academic failure

12 Credit Card Accountability Responsibility and Disclosure (CARD) Act No credit cards for college students unless co-signed by a parent or they can demonstrate ability to pay. No credit-limit increases if you are under 21 and have a co-signer without that co-signer s permission. No marketing and freebies on college campuses. Word of Caution: The co-signer is liable and the credit card company has the option of keeping the parent on the hook even after the young person turns 21. Thus, parents will be legally responsible for repaying their children's debts and have a stake in how the account is managed.

13 Let s Talk! The discussion to have before getting a credit card. What are credit cards and what are the consequences of using them unwisely? What is interest? Why are credit scores important? What purchases should or shouldn't go on a credit card? What are appropriate spending limits on the cards?

14 Ten Credit Card Mistakes 1. Overspending 2. Holding too many credit cards 3. Making only minimum payments 4. Carrying a permanent balance 5. Assuming low interest rates stay the same Continue... 14

15 Ten Credit Mistakes 6. Paying a higher interest rate than necessary 7. Paying extra for incentive credit cards 8. Not understanding fraud 9. Paying off the wrong credit cards first 10. Ignoring extra fees or penalties 15

16 The High Price of Interest Assume you owe $5,000 on a credit card that charges 18% interest on the unpaid balance. The minimum monthly payment is 4% of the money owed (initially a payment of $200). How long will it take for your to repay the $5,000 if you make the minimum payment each month?

17 The High Price of Interest It will take 12.5 years to repay the $5,000 if you make only the minimum payment each month. By paying $250 each month, it takes 2 years to pay off debt. By paying $300 each month, it takes 1.67 years to pay off debt. By paying $400 each month, it takes 1.17 years to pay off debt.

18 Staying Out of Credit Card Trouble Shop for the credit card with the best terms Limit the number of credit cards you have Don t charge perishable items Pay off as much as possible every month 18

19 Timing Makes a Difference Try to pay all credit card bills on time Pay off the credit card with the highest interest rate first Don t buy on impulse Notify your creditors if you can t make your payments on time 19

20 SNL Words of Wisdom 20

21 Check out our new website!

22 Make an appointment today! Call (225) Stop by B4-A Coates Hall (in the basement of Coates Hall within Career Services)

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24 Thank you! For more information: LSU Student Financial Management Center B-4A Coates Hall (225)