As a student, you’re always going to be broke – that’s a fact of life. But it’s important that you protect yourself against credit mongrels like banks who want to give you a fancy new Toronto Maple Leafs credit card with a $5,000 limit. They don’t care that you won’t even be able to make the minimum payments, because then they can ding you more. The last thing you want to do is wreck your credit ratings and have to call your mom and dad to bail you out of debt.
Protect your credit – When you’re in school, your grade point average indicated how well you performed in your classes. Colleges and Universities use this indicator to decide if they want to admit you to their freshman class. Your credit score works in a similar way, except it’s a measure of your credit risk. A credit score is derived from a standardized formula. Late payments on bills, having no credit references, and maxing out your credit card will screw up your credit history and lower your credit score. Your credit score indicates how likely you are to pay your bills. So, when you’re ready to buy that new car or even get a mortgage or even apply for car insurance, your credit score not only determines if you’ll be given credit or the loan, but also, what interest rate you’ll be eligible for. A higher credit score gives you a lower interest rate when you’re borrowing money. Don’t think that you can blow off your cell phone bill one month or neglect to pay your credit card bill because it will catch up with you later in life.
Credit Cards – here’s a reality check for you – the average first year post secondary student who enter school debt free in September accumulates over $1,500 in credit card debt by May. Let’s say you rack up $1,500 on a card that charges you 19% interest and you pay the minimum required payment each month. It will take up to 17 years to pay off the balance! Don’t be fooled by incentives and ‘don’t pay interest for six months’ scam that some banks offer students. They don’t really care if you rack up a bunch of debt, just as long as they get their money from you. Still feel that you need a credit card while you’re in school? You’re best bet is to open a Sprowt NO FEE BANKING Account and take advantage of a low fee Student MasterCard. It has a low annual fee, low, fixed interest rate (always!), a grace period that allows you to pay in full before interest charges are applied and the opportunity to sign up for choice rewards – kind of like your Shoppers Optimum Card where you accumulate points towards purchases.
Avoiding Interest – You’ve got bills to pay, books to buy, tuition and oh, some kd and tuna to buy. Make sure you aren’t wasting the money that you have on interest you might be paying. There are some easy ways to keep your interest costs under control – or eliminate them altogether.
What is Interest anyway? When you borrow money, whether it’s a credit card or a student loan, you’ll have to deal with interest. Interest is an agreed amount *usually calculated as a ‘percentage’) that a borrower (you) has to pay to the lender for using their money. The key here is how much money you borrow, or in other words, the higher the balance means the higher the interest.
Credit Cards – credit cards generally have interest rates between 19 and 25% and in an ideal world, you would never care what your interest rate is because you’d pay your balance off every month. We all know this is not realistic but you must be prepared to cover the cost of what you buy and pay for it as quickly as possible, and don’t get caught in the trap of just paying the minimum monthly balance. Here’s why:
Student Loans – Depending on the kind of loan you have, interest will be accumulating while you’re at school. Make sure you understand the type of loan you have and what your responsibilities are. A financial institution’s loan will require regular interest payments, while government sponsored loans like OSAP (Ontario Student Assistance Program) usually defer your interest payments for as long as you’re in school and continue to qualify for the loan program. The sooner you pay off your student loan, the better. If you pay only the minimum each month, you’re going to pay more interest in the long run. Paying more than the minimum amount means that you’re paying off more of the principal – that’s a good thing!
Making your payments – Be sure to pay off your loan or credit card debt as quickly as possible. Don’t just make the minimum payments, or it will take you years to pay off and you’ll pay a lot more interest. Also remember to pay your bills on time – because you’ll be charged late fees if you miss your payments, raising the total amount of money you owe. It’s also important to remember that if you forget or can’t make a payment, you will be charged full interest on your outstanding balance, including the late fees. If this happens often, your credit rating will be negatively affected.
With a Sprowt Account, you can pay all your bills on line – for free! You can even schedule the payments for future dates, which is great if you get into the routine of paying all your bills at the beginning or end of each month. Telephone banking is another easy way to pay your bills. You’ll be taken through simple automated steps and you can schedule future or recurring payments. This service is also free with your Sprowt account!!
