Had fun with your credit card? Now it's time to pay the piper

August 05, 1994|By Howard Henry Chen | Howard Henry Chen,Sun Staff Writer

If you're in college and mired in credit card debt, clean it up now. Not only will it save you money, but the sooner you repair your credit record, the easier your life will be later.

Tighten up your J. Crew belt and look back at what you've bought with credit cards in the past year. If you're like millions of other students, you probably bought things you either didn't need (like a $200 compact disc rack that holds up to 500 discs -- which gave you the perfect excuse to buy more CD's), or should not have paid with credit in the first place (essentials, like groceries and gasoline and beer).

First off, get rid of the cards. Cut them up, send them back to the creditors (with a nasty note), give them to your parents to hold, or freeze them in water (so you'll have to let them melt before using them). Learn to pay cash, or find a credit counseling center and get help. Or, according to Ruth Susswein of Bankcard Holders of America, follow these tips:

* Bite the bullet and get a handle on how much you actually owe. Not only does this allow you to design a payment schedule, but it might be enough to scare you into following it. Add up the balances and then calculate the total minimum payments.

* Once you calculate the minimum monthly payment, pay more than this amount. "With minimum payments these days hovering around 2 percent, consumers who only cover that minimum payment are barely putting a dent in the principal each month," says Ms. Susswein. For example, if you owe $5,000 and pay 2.5 percent of that each month, it'll take you a little more than 24 years to pay it off. And with an annual percentage rate of 17 percent, you'll have paid more than $6,000 in interest -- more than your initial principal.

* Pay your bill as soon as you get it. The interest clock doesn't stop ticking. The sooner Visa receives your check, the less interest you will pay that month.

* It may help to make out the largest payment on the card with the highest interest rate first, with minimum payments or more on the rest of your cards.

* After you pay off one card, make the same payments on the next one. Don't get lazy now. And once you pay off a card, let go of the ghost. Ask the issuer to cancel your account so you won't be tempted again.

* Just say no to an issuer's offer of a minimum payment of zero. Some issuers will allow you to skip a month if you pay double the minimum. That'a no-no. Be steadfast with your payments.

* Consolidate your cards. Find the card with the lowest interest rate and transfer the balances onto that card. It also makes it easier to keep track of bills. And, with fewer checks to write, you'll wince less every month.

Also, if Mom and Dad can afford it, try working something out with them. If they pay off your bills, you could pay them back every month, with a negotiated, lower interest rate. Parents usually won't want to gouge their kids, and you'd still be learning your lesson. And best of all, you won't be paying the bank.

For additional help, or to get in contact with a credit counselor, call Bankcard Holders of America at (703) 389-5445 or the Maryland Consumer Credit Counseling Center at (410) 747-6803.

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