Month: October 2016

3 Types of FAFSA Deadlines You Should Pay Attention To

Posted on by Courtney Gallagher and Drew Goins

Ah, deadlines. The sworn enemy of students across the nation. When you’re busy with classes, extracurricular activities, and a social life in whatever time you’ve got left, it’s easy to lose track and let due dates start whooshing by. All of a sudden, your U.S. history paper is due at midnight, and you still don’t know Madison from a minuteman. We get it.

Nevertheless, we’re here to point out a few critical deadlines that you really shouldn’t miss: those to do with the Free Application for Federal Student Aid (FAFSA®). By submitting your FAFSA late, you might be forfeiting big money that can help you pay for college. Luckily for you, you’ve got just three types of deadlines to stay on top of. Now if only your Founding Father flashcards were that simple.

Here are those three deadlines:

1. The College Deadline

The first type of deadline comes from colleges themselves, and—spoiler alert—it’s typically pretty early. These deadlines vary from school to school, but they usually come well before the academic year starts. If you’re applying to multiple colleges, be sure to look up each school’s FAFSA deadline and apply by the earliest one.

Many of these FAFSA due dates are priority deadlines. This means that you need to get your FAFSA in by that date to be considered for the most money. Many colleges have this date clearly marked on their financial aid pages. If you can’t find it, you can always call your school’s financial aid office.

If you’re worried about gathering information to complete the FAFSA in time to meet this deadline, don’t be. Beginning with the 2017-18 FAFSA, you’ll be able to apply as early as October 1 (instead of January 1 as you may have done in the past). This earlier submission date will give you more time to complete the FAFSA before college deadlines approach, which means more time to compare schools and more certainty. You’ll use earlier (2015) tax information, so there’s no need for estimates and most people will be able to automatically import tax information directly into the FAFSA.

Didn’t think it could get any easier? The earlier launch date coincides with many college application deadlines, so go ahead and apply for schools and for federal aid at the same time. If you haven’t figured out where you’re applying yet, don’t worry! You can still submit the FAFSA now. Just add any school you’re considering, even if you’re not sure whether you’ll apply or be accepted. You can always add or remove schools later.

2. The State Deadline

The second deadline is determined by your home state. Check your state’s deadline here.Some states have suggested deadlines to make sure you get priority consideration for college money, and some just want you to get the FAFSA in as soon as you can. Several states that offer first come, first served financial aid will be changing their deadlines from “as soon as possible after January 1” to “as soon as possible after October 1” to match the application’s earlier launch. If your state’s deadline is “As soon as possible after October 1, 2016,” you should get your FAFSA submitted ASAP. Many of these states award financial aid funds only until they run out, so the sooner you apply, the better your chances.

3. The Federal Deadline

This last deadline comes from us, the Department of Education, aka the FAFSA folks. This one is pretty low-pressure. Our only time constraint is that each year’s FAFSA becomes unavailable on June 30 at the end of the academic year it applies to.

That means that the 2017–18 FAFSA (which launched on Oct. 1, 2016) will disappear fromfafsa.gov on June 30, 2018, because that’s the end of the 2017–18 school year. That’s right; you can technically go through your entire year at college before accessing the FAFSA. However, a few federal student aid programs have limited funds, so be sure to apply as soon as you can. Also, as we said, earlier deadlines from states and colleges make waiting a bad idea.

Why so many deadlines?

All these entities award their financial aid money differently and at different times. What they all have in common, though, is that they use the FAFSA to assess eligibility for their aid programs. So when a college wants to get its aid squared away before the academic year starts, it needs your FAFSA to make that happen. If you want in on that college money, you need to help the college out by getting your information in by its deadline. Same goes for state aid programs. Additionally, many outside scholarship programs need to see your FAFSA info before they will consider your application. If you’re applying for scholarships, you need to stay on top of those deadlines, too.

 

CHECK FAFSA DEADLINES

 

What happens if I miss the deadlines?

Don’t miss the deadlines. Plan to get your FAFSA in by the earliest of all the deadlines for your best crack at college money. By missing deadlines, you take yourself out of the running for money you might otherwise get. Some states and colleges continue awarding aid to FAFSA latecomers, but your chances get much slimmer, and the payout is often less if you do get aid. It’s just better not to miss the deadlines.

If you miss the end-of-June federal deadline, you’re no longer eligible to submit that year’s FAFSA. Did we mention not to miss the deadlines?

Across the board, the motto really is “the sooner the better.” So put off the procrastinating until tomorrow. Apply by the earliest deadline. Get your FAFSA done today!

Courtney Gallagher is a senior studying English at Westminster College in Missouri. She is an intern for the Content Development team in the office of Federal Student Aid at the U.S. Department of Education.

Drew Goins is a former intern with the U.S. Department of Education’s office of Federal Student Aid. Likes: politics, language, good puns. Dislikes: mainly kale.

This article was originally published on blog.ed.gov and can be found here.

4 Money Lessons From Rapper Dee-1

Posted on by Teddy Nykiel

Most musicians give lousy financial advice. Whether it’s Madonna’s “Material Girl” or Puff Daddy’s “It’s All About the Benjamins,” many give the impression that cash is for showing off, not saving up.

So when New Orleans-based rapper Dee-1 dropped a music video about paying off his student loans, it made headlines. Paying “Sallie Mae Back,” as the song is titled, is a worthwhile goal for the roughly 43 million Americans with student loan debt. And the middle school teacher turned rapper has teamed up with the auditing, tax and consulting firm PricewaterhouseCoopers to help students around the country gain financial literacy.

NerdWallet asked Dee-1, whose given name is David Augustine Jr., for some of his best money advice. Here’s what he had to say.

1. Have an emergency cash stash

One of Augustine’s earliest money lessons came when he was a teenager and his grandfather’s car broke down. His grandfather allayed Augustine’s worries that he couldn’t afford the repairs when he revealed $25,000 in cash tucked into the green sleeve of a jazz record.

“That was the most money I’d ever seen in my entire life,” Augustine says.

Augustine began storing his money in a green rap CD cover. Today, he keeps his emergency fund in a bank account.

2. Be smart about borrowing

Augustine’s path to becoming debt-free wasn’t easy. He defaulted on his student loans, tarnishing his credit score, as he describes in the song. Part of his partnership with PwC involves visiting high school classrooms to share what he’s learned.

“I’m not telling them about how I make it rain in the strip club,” he says. “I’m talking about college prep, how they’re going to pay for college and how they’re going to choose a career.”

He urges students to fill out the Free Application for Federal Student Aid, or FAFSA, which can qualify them for scholarships, grants, work-study dollars and student loans. He’s also sharing a tip approved by many financial aid advisors: You should only borrow as much in student loans as you expect to earn in your first year working after college.

3. Save for retirement

Setting aside a portion of each paycheck in a 401(k) is one of the best ways to save, especially if your employer offers a match. As an entrepreneur, Augustine doesn’t have an employer-sponsored retirement account, but he still contributes to his retirement savings every month.

“A certain amount of money comes out of my checking account and goes into an IRA,” he says.

IRA stands for individual retirement account. Anyone younger than 50 can contribute up to $5,500 per year to one — and if you’re 50 or older, you can contribute up to $6,500 in most cases.

Depending on the type of account you choose, you’ll get a tax break when you invest the money or when you withdraw it.

4. ‘Make more out of less’

Augustine went more than two years without a steady paycheck when he was launching his full-time music career. That period involved eating a lot of ramen noodles and McDonald’s dollar menu items, but Augustine says some of his biggest savings came from driving a 1998 Honda Accord instead of a fancier ride. He writes about it in his song, “No Car Note”: “Even if you make more than me, I save more than you. / I make more out of less and gross what I net. / I own this you can never repossess.”

In addition to saving, Augustine uses the money he earns to make more music. Although he’s found success as an artist, he says paying Sallie Mae back is still one of his proudest accomplishments. He treasures a printed screenshot of the email informing him that his loans were paid off.

“When I buy my first house,” he says, the email is “gonna have its own room.”

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email:teddy@nerdwallet.com. Twitter: @teddynykiel.

Image: Dee-1 visits students at Cardinal Hayes High School in Bronx, New York. Courtesy of PricewaterhouseCoopers.

The article 4 Money Lessons From Rapper Dee-1 originally appeared on NerdWallet.

You have the right to pay off your student loan as fast as you can, without a penalty

Posted on by Seth Frotman

Millions of student loan borrowers are working hard to stay on track and pay off their student loans. Most of you send in your payment to your student loan servicer (the company that sends you your bill) on time each month, and many of you might even send in someextra cash to get ahead on paying off your loans.

All student loan borrowers have the right to make extra payments (known as prepayments) at any time, without any fees or penalties. If you can afford it, paying a little extra each month or making a lump sum payment towards your principal is a great way to lower the total cost of your loan. Not only do you pay down your debt faster, but you save money on interest charges over time.

We are concerned that student loan servicers may be making it harder for borrowers to get ahead who have made additional payments on their loans. A number of consumers have reported that, after trying to get ahead on paying off their student loans, they were sidetracked by their student loan servicer.

These borrowers report that by lowering the consumer’s monthly payment amounts, their servicers extended the repayment period and the amount of interest a consumer would pay. Consumers report that their servicers did this without the borrower having requested this change and, in some cases, without letting the borrower know this change was coming.  While lower monthly payments could sound like a good thing, if consumers paid according to the new billing statement amounts sent by their servicers, they would make smaller payments over a longer time—potentially increasing the total cost of their loans by hundreds of dollars.

Here’s what one borrower told us:

“[My servicer] just sent me notice they have automatically decreased my payment amount by half–this is without my consent. In effect, [my servicer] is trying to double the length of my repayment AND charge me the related interest. [My servicer] offers no way for me to manage the payment amount through their web site or through their automated phone system. I can LOWER my payment through these automated systems, but I cannot restore my original, higher payment amount.”

Servicers reset loan repayment schedules, causing borrowers’ monthly payment to rise or fall— a process known as a “redisclosure” of repayment terms.  Redisclosures occur for a number of reasons.  For example, we have heard that changes to servicers’ computer systems can trigger redisclosure for certain borrowers, sometimes including those who had been making extra payments to try to save money on interest charges and pay their loans off sooner. Redisclosure can also occur when your student loans are transferred to a different servicer, a servicing practice that has affected more than 10 million student loan borrowers since 2013. Borrowers who are trying to pay down their loans more quickly should watch out for surprise redisclosures and make sure they stay on track. Here’s some helpful advice:

Protect yourself and your money

If, each month, you pay exactly your monthly payment amount, you will pay down your loan balance on time and on schedule.  For borrowers who are paying extra each month to try and get out of debt faster, here’s some helpful advice:

  1. Double check to make sure you’re still on track to meet your goals. Take a look at your monthly statement and your account payment history (generally available for free on your servicer’s website). If you discover that your servicer has lowered the monthly payment for your loans and you’re trying to pay off your debt more quickly, you can tell your servicer to set your monthly payment back to your requested payment amount, or choose to make extra payments each month.
  2. Tell your servicer what to do with your extra money.  If you regularly pay extra toward your loans through automatic payments, contact your servicer to ask to establish a standing instruction on your account so your extra money goes to, for example, your most expensive loan-generally the loan with the highest interest rate. You can also provide instructions with individual payments. By allocating extra money to your highest interest rate loans, you may save hundreds of dollars or more while also paying off your loans faster.  You may need to contact your servicer’s customer service department directly by phone or email to set up your prepayment preferences – especially if you have been making automatic payments. You also want to be sure your extra money isn’t advancing your due date and causing your servicer to give you a “payment holiday.”  This can cause you to go multiple months without making a payment (called “paid ahead status”), and may cost you more in interest charges over the long-term.
  3. If something doesn’t look right, ask for help. If you get a surprise bill for a payment amount that is less than what you were paying before, contact your servicer and ask to be placed back on your previous repayment schedule. If you’re having trouble with your servicer, submit a complaint.

Earlier this summer, we joined leaders at the Department of Education (ED) and the Department of the Treasury, as ED announced new standards for the servicing of federal student loans , including improvements in the way student loan servicers should communicate with you when they make changes to how they handle payments, when they make changes to how their systems work, and if your servicer is going to change. We’re continuing our work with student loan servicers, federal and state agencies, and other stakeholders to strengthen student loan servicing practices. The Bureau has also prioritized addressing illegal student loan servicing practices when they occur.

If you have questions about repaying student loans, check out our repayment tool, Repay Student Debt, to find out how you can tackle your student loan debt.

For more information on student loans and other consumer financial products or services, visit AskCFPB.

Seth Frotman is the CFPB’s Student Loan Ombudsman.To learn more about our work for students and young consumers, visit consumerfinance.gov/students.

This article was originally published at consumerfinance.gov and can be found here.

Freshman Banking 101: Checking Accounts

Posted on by Juan Castillo

The road to a college degree isn’t just about learning in the classroom. It’s about learning life skills, too, like managing your money.

If you’re off to college and just opened your first checking account, you’ll enjoy the convenience it offers. Checking accounts can be handy for paying the monthly rent and for everyday expenses like groceries and all the ramen noodles you can eat. But with easy access to your money comes responsibility, like avoiding expensive bank fees when your account balance dips below zero.

Here’s a look at some account basics and some best practices to minimize your costs and maximize your benefits when using your first checking account.

How a checking account works

A checking account at a financial institution allows you to put money in and then take it out whenever you want.

As the name suggests, the account can come with checks, which you write to buy goods or services or make payments. But most accounts also come with debit and ATM cards, which also provide access to your cash.

Many banks also offer the conveniences of online and mobile banking, such as peer-to-peer payments.

Tip 1: Avoid overdraft fees

Checking accounts can be fraught with fees. Most financial institutions, for example, charge a monthly fee just for maintaining your account, though you can find banks and credit unions that don’t charge. Some banks offer ways to waive fees, such as by keeping a minimum balance.

Among the steepest checking account charges are overdraft fees, which banks can charge when you don’t have enough money in your account to cover a transaction. The median bank overdraft fee is $34, according to the Consumer Financial Protection Bureau.

Some banks cap the overdraft fees they charge you in a single day to just one, even if you have several overdrafts. With others, if you keep making transactions after your balance drops below zero, you can rack up overdraft fees of $200 or more in the same day.

Living on a college budget is hard enough; don’t throw your money away on expensive bank fees if you can avoid them. Know your bank’s policy on overdrafts, and check for ways to minimize or prevent overdraft fees. For example, some banks don’t charge for overdrafts if a checking account is overdrawn by $5 or less at the end of the business day.

Some banks won’t allow you to overdraw at all, but you’ll incur a nonsufficient funds fee if a transaction is declined. A nonsufficient funds fee can run about $25 to $30, but the check recipient can also charge for the returned check, making for a pricey double whammy.

Banks also offer overdraft protection, which triggers a transfer from a linked account, such as a savings account or credit card, when an overdraft occurs. A transfer usually costs around $10 or $12. You can opt out of overdraft programs, but you risk incurring a nonsufficient funds fee.

The best advice is obvious: Don’t spend money you don’t have.

Tip 2: Monitor account balances

To avoid spending what you can’t cover, monitor your checking account balance regularly. If your checking account offers them, take advantage of text alerts or online or mobile banking to keep real-time tabs on your balance.

Tip 3: Use budgeting tools

Of course, budgeting is a great way to take command of your finances. Tally up your account spending and deposits and keep them in line.

Check if your bank offers budgeting and savings tools. Simple, an online bank, offers customers a Safe-to-Spend tool, which factors in your bills and savings goals to show how much you can afford to spend without going into the red.

More features to use to your advantage

Here are three top features to make your checking account experience a positive one:

Interest checking. Checking accounts are known for paying low interest rates, hovering close to 0% at most major banks. But some online-only banks offer high-interest checking with attractive annual percentage yields. With one of these, your account doesn’t just hold money, it can grow it.

Accessible ATM network. If having easy access to cash is important, you’ll want to go with a checking account from a bank with a large number of ATMs. Use your bank’s ATMs or those in its network. Otherwise, you’ll risk out-of-network fees, which can add up. Look for a bank that refunds ATM fees or doesn’t charge for out-of-network use.

Mobile banking. If you can’t do without your smartphone, consider the advantages of mobile banking, which allows you to take care of banking business anytime and anywhere, so long as you have an internet connection.

Among the most convenient time-saver features is the ability to deposit checks into your account with a smartphone camera. And with peer-to-peer payments, you can settle up tabs or bills on your smartphone simply by linking peer-to-peer service to your bank account. That’s using technology to your advantage.

 

Juan Castillo is a staff writer at NerdWallet, a personal finance website. Email: jcastillo@nerdwallet.com. Twitter: @JCastilloNerd.

The article Freshman Banking 101: Checking Accounts originally appeared on NerdWallet.

How to Refinance Your Student Loans (Told in Under 350 Words)

Posted on by Teddy Nykiel

Most of us are more responsible now than when we were 18. So if you’re still paying back a student loan you borrowed before you could legally order a cocktail, there’s a good chance you qualify for a better interest rate.

That’s where student loan refinancing comes in. It’s a way to save money by taking out a new, lower-interest loan to pay off your existing loans. Here’s how to do it:

Decide if it’s right for you

Refinancing isn’t for everyone. Skip it if you qualify for a federal loan forgiveness program or want to take advantage of income-driven repayment plans. You kiss those benefits goodbye forever when you refinance federal loans.

Consider refinancing only if you’re absolutely sure you can part with those federal loan perks or if you have private loans. It should especially pique your interest if your current rate is 6% or higher. To qualify, you need a credit score at least in the high 600s and enough income to comfortably afford monthly student loan payments and your other debts.

Scope your options

The whole point of refinancing is to get a lower interest rate, so it’s worth your time to search for the best offer.

Refinance marketplaces are an easy way. Try NerdWallet’s, which is powered by our partner Credible, or LendKey’s, where you can compare refinance options from community banks and credit unions. With both, you’ll fill out a single form to get rate estimates from multiple lenders, and your credit score won’t get dinged. Not all refinance lenders participate in marketplaces, so consider lenders individually, too.

Submit an application

When you’re ready, apply through a marketplace or directly through the lender. You’ll need to provide details about current loans and personal income information, and the lender will run a hard credit check to see if you qualify.

After you’re accepted, the lender will pay off existing loans you choose to refinance and issue you a new one. Going forward, you’ll make payments to the new lender.

That’s the gist. To learn more, check out these questions to ask yourself before refinancing.

 

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

The article How to Refinance Your Student Loans (Told in Under 350 Words) originally appeared on NerdWallet.

What I Wish I Knew At My First High School Job

Posted on by Michelle Jackson

I remember it as if it happened yesterday: my first job in high school. I was fed up with asking my mom for money, so I decided it was time to find a job. My mom didn’t want me to work and cautioned me that once I started working, I wouldn’t be able to stop. What she feared was that it would take me away from my schoolwork.

I was in no mood to listen to anyone, not even to my mom. I just wanted my own money.

My job search began in earnest and I landed a job making sandwiches at the mall. I loved it. I loved the camaraderie, I loved the money, and I loved that first step towards adult independence.

I worked hard making sandwiches (I find it tough to look at a roast beef sandwich nowadays with good feelings), cleaning, and helping customers. But it was hard work. I had to clean stuff, help customers, manage cash, arrive on time, and learn how to budget and save my money.

I discovered that customers weren’t always easy to work with – especially when they were hungry. My clothes always smelled like food, and after making the first five hundred sandwiches, I no longer loved sandwiches so much, either.

But behind all those annoyances, I was being shaped for the future. Working at the local sandwich store was among the many part time jobs that I took on during high school.

But each one was a stepping stone to a future career.

For high school students preparing for adulthood, your first job is an important milestone for a number of reasons:

  • Learning how to manage your own money. This is huge. You will experience the sting of discovering what FICA is (Federal Income Contribution Act) and the conversation about actual take-home pay versus money earned.
  • You learn how to work. You would think that work is “easy,” but there is a process to being a good employee. You have to show up on time and you’re now accountable to your coworkers.
  • You learn to be responsible. It’s similar to learning how to work. Employees are responsible for learning company talking points, safety standards, and the mundane tasks that keep the business running.

Many people would say that you have to be careful about the type of job that you decide to take up. I disagree. Even an entry-level, part-time job can teach you a number of transferable skills that can be used later on in life.

Let’s face it, a lot of people are terrible workers.

You know, there’s the person who stands and whines all the time, the person who hustles, and the brownnoser.

Figure out what type of worker you would like to be. And you don’t want to be any of the three mentioned here!

The United States Bureau of Labor Statistics reported this year that the youth labor force had increased dramatically in July. Those young people are well on their way to building their future careers and wealth.

The younger you start saving, the more time you have to grow your wealth.

Your first job is also your formal introduction to personal finance matters. When you proudly hold that check in your hands, you also notice the deductions and begin to ask questions about money, taxes, and fairness!

After all, when your mother gives you an allowance, it comes with no strings attached. While making sandwiches, you realize that there are forces out there that you need to battle, and building a pile of savings is one way to win.

Do I Really Need a Budget in My 20s?

Posted on by Brianna McGurran

“Ask Brianna” is a Q&A column for 20-somethings, or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to askbrianna@nerdwallet.com.

This week’s question:

I’ve heard I’m supposed to create and stick to a budget, but that seems complicated and time-consuming. Do I really need a budget in my 20s?

It is, unequivocally, a good idea to have a plan for how you spend your money. With a budget, you won’t spend your whole paycheck — after you’ve paid rent and bills — on dinners out and Amazon impulse buys. You’ll be more likely to set money aside for future needs, like retirement and emergencies.

Some swear by a certain budgeting app or a painstakingly color-coded Google Sheet. But budgeting doesn’t have to mean tracking every expense and cutting out the little things that make you happy. Even financial advisors understand that can be restrictive and hard to maintain.

“I always equate the word ‘budget’ to ‘diet,’” says Mindy Crary, a financial coach at Creative Money in Seattle, Washington.

Instead, think about budgeting as a way to set goals for the things you want to do in the future, a way to put your money to work. One approach: Get a handle on the expenses you can’t avoid; come up with a dollar amount you want to save every month; then spend the rest as you please. Here’s what that looks like in three easy steps.

Step 1: Lower your fixed costs

“When thinking about budgets, people usually default to thinking about how to cut their everyday consumption,” says Hui-chin Chen, a financial planner and co-owner of Pavlov Financial Planning in Arlington, Virginia.

But buying a cup of coffee every day will not bankrupt you. Living in an apartment, driving a car or making a student loan payment you can’t afford is more problematic.

Some expenses are easier to trim than others. Federal student loans come with income-driven repayment plans that will let you pay a certain percentage of your income each month to keep your bill affordable. Stick with roommates, and hold off on moving into a luxury apartment building if that would increase your housing costs to 30% or more of your income.

Step 2: Focus on saving

You don’t have to account for every penny you shell out. Another way to make sure you don’t overspend is to come up with a savings goal first, then back your way into a budget that allows you to hit that goal, Crary says.

Some of your savings should go to an emergency fund until you’ve got at least $500 put away for unexpected expenses, such as medical costs or car repairs. Some must go toward retirement; contribute at least enough to meet the employer match on your 401(k), if one is offered, or start to beef up your IRA. The rest can go to a savings account that you’ll use to hit other goals like travel or a down payment on a house. The amount you have left over is often called “disposable income,” or what you can spend on nonessential expenses, like shopping and entertainment.

“As a starting point, if you have never really thought about it, setting up an automatic deduction from checking into savings is a good way to test out your budget and lifestyle,” Chen says.

Step 3: Re-evaluate

If you can’t save any money, it may be that you simply can’t live on the amount you earn. Consider adding to your income by hitting the LinkedIn circuit in search of a higher-paying job, or look into temporary side gigs in the meantime.

You can also take a look at last month’s bank or credit card statements and consider making changes if there’s a particular area of spending that is really out of whack. The changes can be behavioral rather than based on dollar amounts, Crary says: If you went out to eat 15 times, try to go out seven times next month instead.

No month of spending will be exactly the same. You can’t always plan ahead for a friend’s birthday brunch or a stolen bicycle tire. Focus on maintaining balance instead. Aim to take the stress out of budgeting, and you might find you like knowing where your money goes after all.

 

Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.

This article was written by NerdWallet and was originally published by The Associated Press.

The article Ask Brianna: Do I Really Need a Budget in My 20s? originally appeared on NerdWallet.

Treat Your First Credit Card With R-E-S-P-E-C-T!

Posted on by Allison Martin

Congratulations on your first credit card! Now it’s time to educate yourself on how to manage this shiny piece of plastic so that you can responsibly build your credit over time.

Here are some tips to get you started:

  1. Only Charge What You Can Afford.

You’re hanging out at the mall with a few friends, and you spot an outfit that would be perfect for your best friend’s upcoming birthday bash. So you try it on, and as expected, it fits perfectly. Plus, the price is right.

But there’s only one problem: there isn’t enough money in your checking account to cover the purchase. To buy or not to buy? The smarter option would be to leave the clothing in the store until you have enough cash on hand. 

  1. Keep Balances Low.

To piggyback off my last point, credit card debt is easy to get into, but extremely difficult to get out of once you’re in over your head. Those seemingly small purchases can quickly add up and leave you with a balance that’s much higher than you can comfortably afford to pay off each month.

Keep in mind that the amounts owed on all your debts account for 30 percent of your credit score.

So the higher your outstanding balances, the lower your score will be.

  1. Don’t Fall for the Minimum Payment Trap.

Are you thinking you can just pay the minimum payment each month and get out of debt in no time? Well, you may want to think again. This was by far the biggest mistake I made when managing my first credit card. But why? Well, only one percent is allocated to the outstanding balance. Everything else goes to interest and fees.

  1. Always Pay on Time.

If you don’t remember anything else from this list of tips, always remember to pay your bills on time, or your credit score will tank. Case in point: one of my credit cards had a$12.72 balance from a recurring account that I was unaware of. Long story short, the account was reported to the credit bureaus as delinquent on day 31 of it being past due, my score plummeted by almost 100 points, and I was hit with a $35 late fee. Even worse, it took several months for my score to rebound. (Side note: late payments are reflected in your credit report and negatively impact your score for two years.)

  1. Review Your Statements.

Remember that $12.72 balance from the last tip that destroyed my credit score? Well, I have to admit that it was a result of negligence on my part. I didn’t take the time to open the statement because I figured it would be empty. I ended up paying for it big time! Approximately $47.72 and a mangled credit score, to be exact.

  1. Understand Grace Periods.

Due dates and grace periods are not created equal. The due date is the day by which you must pay at least the minimum payment to avoid a late fee and penalty APR. By contrast, the grace period is the window of time you have to pay the balance on your purchase before you are charged an interest on it – generally about a month from the date on the statement.

  1. Read the Fine Print.

You want to understand exactly what you’re getting into and the accompanying fee. A few things to be on the lookout for:

  • Over-The-Limit Fee: A fee may apply if you swipe more than your card permits.
  • Annual Fee: Some credit card issuers charge you a fee to be an account holder.
  • Cash Advance Fee: Avoid ATMs at all cost, or you’ll pay a hefty fee to borrow – and in many instances, a higher APR. Plus, a grace period may not apply.
  1. Monitor Your Credit Report.

The best way to responsibly rebuild your credit over time is to make timely payments, keep the balances low, refrain from opening too many accounts at once, and most importantly, monitor your credit profile to ensure the accuracy of the contents of your FICO report.

You can retrieve a free copy of your credit report from each of the credit bureaus once every year at annualcreditreport.com. You can also sign up for free credit monitoring services, such as Credit Sesame and Credit Karma, which provide instant alerts anytime that activity takes place in your credit file.

Bonus Tip:  Do not get a second card until you’re safely out of college!

A Final Thought

Credit card debt is super easy to get into, but virtually impossible to get out of if you use your card(s) irresponsibly. So be proactive about responsibly managing your card from your first swipe to the day you decide to add others to your arsenal.

The article Treat Your First Credit Card With R-E-S-P-E-C-T! originally appeared on CentSaiAdulting.