Saturday afternoon I was on the bus making my way up Wisconsin Ave, when I overheard a girl talking on the phone. The bus was very crowded, I was standing next to her, and she was talking loudly. She was talking to who I assume was her mother, and she wanted her mom to try and get her a credit card again since she now had a job and was 21. She wanted this credit card so she could "make the minimum payments" and not have to pay back the full amount to her mother each month.
There were so many things wrong with this conversation. First of all, a credit card does not equal free money. By not paying off her balance each month, she is paying somewhere been 20 - 25% interest on all of her purchases. This means $100 for a pair of shoes turns into $120. Also, by making only the minimum payments each month on your credit card, this means that you are carrying over the balance month to month, meaning you are paying interest on the carry-over. Let's say you have a credit card bill of $500, and you make the minimum payment of $10. The next month, you spend $400, but the $490 that you didn't pay off the previous month rolls over. Then, you have to pay 20% interest of the new total ($1090) * 20% + $1090 = $1308. Now your $1,100 in purchases has turned into $1,308. See how quickly it escalates.
Seeing that she was so young, this is a crucial stage for her to learn proper money management. Mistakes she makes now will effect her future - they run a credit report (usually) when you apply for a lease to rent an apartment, they sometimes run a credit report when you apply for a job, your credit score will come into play if you want to take out a loan (maybe for school or a house), and if your score is high, then your rate will be high, and you will end up owing more than someone with a better score.
The moral of the story is - pay off your credit card in full every month (or make more than the minimum payment at the very least). And don't have loud personal phone conversations on the bus if you don't want others listening and then blogging about your life.
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