DePaul Financial Fitness : Control Credit

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Control Credit - Debt

Manage Your Debt

The key to using credit wisely is control. Control how much you spend, how quickly you pay it back and the types of items purchased. You should always aim to charge only what you can afford to pay when the bill arrives.

Once you are in debt, however, the best way to manage it is to minimize it. Each month you carry over a balance, you will owe a payment to the credit card company. The minimum payment is usually 2% - 4% of your outstanding balancing. To maintain control of your debt, save money, and minimize the amount of time you're in debt, always try to pay more than the minimum if you can't pay the balance in full.

For example, let's say you have a balance of $500 on your credit card. As you can see below, if you pay just the 2.5% minimum payment every month, you would pay a total of $865.40 for your debt, including $365.40 in interest, and you would have to make payments for 7 years!

Debt Balance	Interest Rate	Minimum monthly payment (2.5%)	Years in Debt	Total Interest	Actual Cost
$500	18%	$12.50	7 years	$365.40	$865.40

However, if you doubled your minimum payment every month, your actual cost is $598.91 and you would be in debt for only 2 years. That's a savings of $266.49!

Debt Balance	Interest Rate	Payment Amount	Years in Debt	Interest Paid	Actual Cost
$500	18%	$25	2 years	$98.91	$598.91

If you have multiple credit cards, you should use the roll-down method to eliminate debt.

48% of credit card owners only pay their minimum monthly payment each month.
The average household with debt carries approximately $10,000 to $12,000 in total revolving debt and has 9 credit cards.
Credit card companies usually offer credit limits to college students between $500 and $3000, with higher interest rates than non-students, between 18% and 20%.
The US has recently seen an over 50% increase in bankruptcies among people under age 25 (fastest growing age range for bankruptcies).
Total consumer debt topped $2 trillion for the first time in 2003.
66% of Americans don't pay off their entire credit card bill each month.
Persons entering college are offered an average of 8 credit cards the first week of school.
55% of college students acquire their first credit card during their first year of college, and 83% of college students have at least one credit card.
45% of college students are in credit card debt, the average credit card debt being $3,066.
Undergraduates students carry an average of three credit cards.
Graduating students have an average of $20,402 in combined education loan and credit card balances.
20% of graduating college students have $10,000 or more in non-school related credit card debt.
University administrators state that they lose more students to credit card debt than to academic failure.
Students double their average credit card debt-and triple the number of credit cards in their wallets-from the time they arrive on campus until graduation.