Careful with credit cards

Put away the plastic! This was the resounding message relayed to students in a recent Soundings lecture. Professor Joanne Pencak conveyed that bit of advice during a lecture on Feb. 12 in Jeffords Lecture Hall that dealt with the importance of making responsible monetary decisions. It was entitled, “Getting Started in Investing, but the main focus seemed to be on how we as college students can put ourselves in a position to begin thinking about future investment decisions.

Tip number one: Stop using credit cards.

According to Pencak, our plastic pals will not seem so friendly in the future.

“The credit card companies focus heavily on your demographic,” said Pencak, addressing the audience of more than 70 students. “They are tying to suck you in, and keep you for life.”

Credit card companies are able to do this due to young Americans’ attraction to materialism coupled with high interest rates. Many students admitted to charging things on their credit cards and paying only the minimum payment when the bill comes in the mail. This leads to compound interest and, according to Pencak, can be your worst enemy.

“You simply end up paying interest on interest,” she said.

Pencak gave an example of compound interest at work. If you were to purchase a $1,000 television on a credit card with an 18% APR, and paid only the minimum payment for each billing period, you would end up paying a grand total of $2,899 for the television!

This fact seemed to strike a nerve with a young woman sitting in the crowd. Lindsay Bullard, a junior education major, claimed that this was exactly her problem.

“I use my credit card to buy stuff that I can’t afford with the cash I bring home from work,” she said with a guilty sort of smile. “I tried to pay it off once and got pretty close, but there was a Coach bag that I really wanted. I’m still paying it off now.”

Pencak took a poll of the audience to see how many credit cards students owned. She was glad to see that 44 percent had no credit cards and 28 percent owned only one.

“Having one credit card is not a bad idea,” said Pencak, “if only for emergencies.”

Also, if you are responsible enough to pay off one credit card each month, this can be an effective way of building up your credit, she said.

Credit cards, evidently, are sometimes a necessity. Willy Watson, a Castleton alum and business major, said he always uses a credit card when traveling.

“I hate carrying cash and I’ve had troubles in the past with debit cards, he said.

Pencak also mentioned the problems with debit cards. She claims that debit cards, unlike most credit cards, have no security features. If there are any errant charges listed on a debit card statement, it is very hard to have them reversed.

Watson, who works for Eaton Vance, an investment management firm in Boston, nodded in agreement. He said that the key is responsibility.

“I make sure I save enough each month to pay off my credit card charges in full every time a bill comes. I’m using my card now that I am home for a few days to ski. I’ll pay it off ASAP.”

Pencak’s message throughout the lecture was clear: Save today and enjoy tomorrow.

“You have to choose what you value. You may value spending money now. You may value saving money for the future. This is a conscience decision you have to make, she said.

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