This was a tough choice. I didn't realize how similar credit cards seem to each other... until I read the fine print. I plowed through four or five different websites and Google-ed several unfamiliar terms, only to find that the four different cards I came up with were offering basically the same thing. Great! So what's the distinction? Turns out, one extra benefit or an interest rate that is the tiniest bit lower can completely change a consumer's mind. At least that's what happened to me.
My group had to decide between four different cards - Bank of America Accelerated Rewards, Capital One Journey, Capital One Cash and Chase Freedom. First to go was the Capital One Journey card, for one main reason - it is a student card, which means interst through the roof. Plus it encourages spending while young adults are still students which is a bad, bad idea. After that, it was between three very similar cards; they all offered a $0 annual fee, cash back and intro APR rates. Now it comes down to the nitty-gritty. We compared the period of time that the intro rate was offered, the rate after the intro period, the cash back opportunities and possible bonuses for spending a certain amount. After some debate and contemplation, we found the card that stood slightly apart from the rest - Bank of America.
One major distinction between this card and the others was the into rate time period - one full year instead of 6 billing cycles. I'll take that. It also offered the lowest possible APR even after the into rate - 12.9% at the lowest. There was also no annual fee and zero liability. All three other cards offered point systems but this one was a little different - the points were redeemable for cash, travel, and plenty of other options. The Capital One card was a close second - unlimited cash rewards with no expiration date - but they were just cash, not redeemable for anything else of value. Okay, decision made - now let's go do some Christmas shopping!
I wish I could say that this was a dream. After going on and on about how stupid 18-year-old Jenny was to get herself in over her head in credit card debt, here I sit, telling you a similar story. Except this time, I can't blame Jenny; this was my own moment of weakness. But I mean, come on - my first day on campus at college and I walk by sixteen booths offering fabulous credit cards. Really? These are sick people, preying on young innocent college students who happen to like shopping. These people know exactly what they are doing. They are ruining what should be a great four years - away from home, a first taste of freedom... all about to be destroyed by expects in psychology and business, who only want money and apparently a good laugh. Well, congratulations Chase Freedom people; you got me.
It sounded like a great deal - no annual fee and an APR of only 8.99%! Plus, a cash line of $3500 and a minimal late fee of only $10, all wrapped up in a pretty blue card that is very fun to slide. Why not? I can handle myself. Compared to all the other offers, this seemed pretty reasonable and student-friendly. So I did what any other girl would do - I did a little shopping. With my shiny new card. A few hours later I was leaving the mall with a Coach wristlet, some sparkling new pumps, plenty of hoodies to keep warm for the winter and $500 in iTunes giftcards to spend all on myself. Only $1200 for all of it, I'll pay it back later. No harm done. Wrong.
Turns out, there was some serious harm done. Only a few days later, two pairs of expensive jeans ripped, all four buttons fell off my winter coat and my mittens went missing. Back to the mall to replace all my favorite things... and pick up some groceries. And put some gas in my car. And maybe grab some soup at Panera. Oh, and loan a few bucks to help cover the food for the party tonight... by the end of the month, I had racked up over $4700 - way over my limit. And it turns out, the Chase people forgot to mention the numerous finance charges; I got charged $40 this month, a charge I wasn't even aware of until I was expected to pay it! Oh, let me explain something else I failed to comprehend when I applied for this card - the concept of an introductory period and an introductory rate. So you credit card people mean to tell me that my rate jumps to 17.99% after the first six billing cycles!? What's so bad about a fixed rate!?
Well, somehow I have to pay this off; and I, as a college student paying $32,000 a year, do not have $4700 floating around! As fantastic as it is to have both balance transfer and cash advance as options to help pay, all I see that doing is adding to my bill. No thank you. You know, the last thing I want to do is call home to Mommy & Daddy to dig me out of this hole... not after I just got out of the house. Looks like I won't even be able to take advantage of the rewards programs they discussed with me - use the card enough and earn free air miles? I'll take it! Free trip home, I hope. But not now; now, my only trips home are going to be to beg for money to pay off this bill.
Maybe I could say the card wasn't used by me... yeah yeah! I could use that zero liability policy! Wait, did they say I had that or I didn't? Life lesson : read the fine print. Yes that would be a good idea next time. I don't even know how accusing someone else of buying things would even sit with me; it's just plain wrong. Well, if anything, I have learned from this little screw-up. Ignore all the screaming people offering me low-rate-this and high-limit-that. Forget it; credit cards aren't for college kids.
I have a story for you; a story to explain why teenagers should not be offered credit cards. Eighteen-year-old Jenny spent her senior year of high school racking up the bill on her brand-new credit card. Now she is $2,500 in debt paying minimum monthly payments with a 19.8% interest rate. Oh, snap.
1. Jenny will be paying this bill for at least 15 years before she is even halfway done, and it may even take her 20 years. Who wants to spend the best ten years of their life, the 20's, paying credit card bills and stressing over interest rates? I'd much rather be apartment hunting or watching the Pats on a Sunday night. And, uh, buffalo wings for the game? Use your debit card.
2. So Jenny put $2,500 on her credit card. I'm assuming the purchases she was making were things like clothes, gas and entertainment. Now get this - by the time she's done paying off this bill, she will have paid over $12,000 for those things. She will end up paying $12, 483.63. I'll be honest - that's three times the price I paid for my car. Oh. My. God.
3. How is that 19.8% interest rate sounding? Good? Not so much. That insane interest rate cost Jenny almost $200 in interest payments - $188.68. I would think that she could spend that money on a Coach purse instead, since it is her irresponsible shopping habits that got her into this mess in the first place. At this point, I'd be just plain embarassed to be Jenny.
4. Now here's some irony. It's going to take 47 years for Jenny to pay off this bill at this rate, but interest isn't entirely to blame. Her very last monthly payment ever, the last one of her 47th year of payment, will include a bigger charge for principle than for interest. She will pay $9.91 in principal and $.09 in interest. This won't be a first though, because the same thing will happen in her 45th year of payment - she'll pay $6.48 in principal and $3.52 in interest. So let's not blame the Interest Monster for Jenny's lack of responsiblity, here. Hopefully, such a brutal interest rate taught her a lesson. It's getting increasingly difficult to feel sympathy for me.
5. Okay, time for some fun - a 25 year high school reunion. Wouldn't it be awesome to reunite with your fellow classmates and explain that you are still in credit card debt 25 years after you created it? Fabulous. So Jenny gets to chat it up with old friends and explain her $873.23 that she still owes. Little bit embarassing, I'd say. While most people are talking about marriage and children, Jenny gets to share the joys of credit card debt related stress. Woo, go Jenny!
6. Jenny could have done several things to avoid this entire problem. First of all, she should have refused the credit card offer in the first place. No credit cards until you can afford to pay for them. Secondly, if she insisted on having a card, she should have shopped around for a more decent interest rate. That could have lessened the blow of interest payments that took $10,000 from her over a time span of 47 years. Thirdly, she could have looked also for a card with a higher limit while she was out shopping for a better interest rate. Duh. A fourth idea is an easy one - pay more than the minimum amount every month to avoid dragging out the process. She could have done this in ten years instead of almost fifty. And finally, Jenny could have asked for help. Help from family or friends, help from even, eek, a bank. Anything to get this paid off faster.
