According to wallethub.com and NASDAQ, the average combined credit card balance for an undergraduate student at graduation is just under $1,000. That’s a good deal lower than ten years ago. In addition, 95% of students pay off their credit card balances in full each month. But when you consider that many students don’t work while in school, that’s a heavy balance to carry and pay off month to month. While credit cards can be a useful tool, it’s a good idea to use them wisely to avoid becoming overwhelmed with debt you can’t pay off. That’s why it’s important to understand the terms and conditions of credit cards, and read any credit card contract thoroughly to understand the type of card and loan you’re agreeing to.
The following list of questions are helpful when shopping for a credit card. Answers provided pertain to MIT FCU's credit cards. Read about our credit card options.
Does it cost anything to just own a card, even if you don’t use it? This question usually relates to an annual or monthly fee.
MIT FCU has credit cards with NO monthly or annual fee.
What is the card’s current interest rate and how are they calculated? Some credit cards have an low or 0.00% introductory APR for a set number of billing cycles on purchases and possibly balance transfers. After the introductory period, the interest rate is a variable rate and is determined by a combination of the Prime Rate (which may vary) added to a margin (which does not change). Because the Prime Rate may vary, the variable interest rate will go up or down if the Prime Rate changes.
Is this an introductory rate? You want to make sure that great rate you're getting is the actual rate or if it's introductory, you know how long it will be honored and for what types of transactions.
Is there an interest-free grace period before payments are due and interest is applied? Most due dates are 24 - 30 days after the close of each billing cycle.
Are there fees or penalties for late or partial payments? Some late payments incur a fee up to $39 or higher.
When shopping for a card, look for one with low or no annual or monthly fees and the lowest interest rate you can find. If you’re just starting to build your credit, you may get charged a higher rate or have to pay an annual fee to get a card, but with timely payments you can imrove your credit score and negotiate for a lower rate, lower or cancelled annual fees, etc.
Don’t assume that the lowest interest rate is the lowest payment or best deal. Some credit card offers are built to get your attention, but are in fact a “teaser rate” which increases after the first few months of having the card. Read the contract carefully to determine if a short term “teaser rate” is being offered, or if your rate will increase significantly if a payment is made late. Both are not uncommon, but you should be aware of this when you choose a card.
You should also consider the method credit card companies use to calculate the interest you owe. There are two different methods of interest calculation:
- Average daily balance excluding new purchases
- Average daily balance including new purchases
Obviously, excluding new purchases is the better option, but is very uncommon in today’s market for credit cards.
It’s also better to select the card with the longest grace period. Most run from 20 – 30 days. If there is no grace period, interest/finance charges begin to accrue the moment a purchase is made.
Manage Your Credit Cards
Once you have a card, think before you use it. Having a card for emergencies or only spending the amount you can pay off in full each month is the wisest route. No matter what you spend, have a plan for paying it back, even if it’s stretched out over a few months. You don’t want a high balance to suddenly sneak up on you. Following are a few tips to help you avoid this problem.
Pay off your monthly balance. Some credit cards charge 20% or more in interest. If there is a grace period and you pay off balances in full, you can avoid spending this additional money.
Unable to pay your balance in full? Always pay more than the minimum amount required. And consider breaking up the amount spent into 3 or 4 separate monthly payments and don’t use the card again til it’s paid in full.
Pay when the bill arrives, not when it’s due. This helps you to reduce the overall amount of interest you pay. Since your payment is usually based on the average daily balance, paying the balance down earlier will reduce the interest owed.
Avoid cash advances. Typically there is a separate fee for cash advances (not at MIT FCU) and you will then be paying interest on the fee as well as the amount you advanced.
Make your payments on time. Late payments, over the limit spending, and bounced payments incur a fee, as much as $40 with some companies. That’s another amount added to your balance too!
Check your statements. Read each statement carefully and alert your credit card company immediately if you notice an error or have a question on any of the charges.
Pay off your highest interest rate cards first. IF you have more than one card, make payments to all on time, but put extra towards the highest interest rate card first. This will save you money in interest charges in the long run.
Consider transferring high rate card balances to lower rate cards. But be careful. If that transfer incurs a fee or the rate offered is an introductory offer (teaser rate) it may not be saving you money.
Credit cards are a part of life today, but you need to be careful with how you use them and know the facts about the cards you have.
*Most introductory rate does not apply to cash advances. Balance Transfer fees may also apply and are usually a percentage of the transfer amount with a minimum fee applied. MITFCU applies your minimum payment to balances with lower APRs first, including promotional APRs. Amounts paid over the minimum payment will be applied in the order of highest to lowest APR balances.
We may change APRs, fees and other Account terms in the future based on your experience with Elan Financial Services and its affiliates as provided under the Cardmember Agreement and applicable law.