The 10 Worst Credit Card Mistakes College Students Make

Blueprint for Financial Prosperity had an article the other day about college students establishing credit by signing up for one of his favorite student cards. I’m glad I had a credit card in college, it helped me build up my credit score. However, in my time at school I saw many mistakes being made with credit cards, here are 10 of the worst in no particular order:

1) Opening a Credit Card for Free Stuff
Whether it’s on the beach over spring break or in the student lounge, booths giving away a free a hat or T-shirt in return for opening a credit card are bad news. Even if you never use the card it shows up on your credit report. After opening several cards for a few freebies your credit score probably won’t look so pretty.

2) Open Door Policy
The dorms were a great place to hang out when I was in school, you could drift in and out of rooms down the hall just shooting the breeze, playing video games, or watching Sports Center. Most people left their doors open and if they didn’t you knew their lock combinations. There usually wasn’t much of value in a college student’s room, except credit cards that is. There were several instances where someone’s credit card was “borrowed” for a spending spree or used to pay for adult phone conversations.

3) Speculating on Credit
I have to admit, I love playing poker. Unfortunately the recent proliferation of online gambling sites has made it way too easy to blow tons of money playing online. When you have an hour to kill between classes, it’s tempting to sit in the library computer lab and test your fortunes. What’s worse than losing all your money in poker? Losing money borrowed at over 15% interest!

4) Taking the Card out for Night on the Town
Friday night was a great time in college. The weekend was full of potential as you hit the town with a date or a group of friends. Unfortunately, the money often ran out long before you were ready for the good times to end. If you had the credit card along, you could always rely on it to keep the party going. Just remember, the only thing worse than a hangover is a credit card hangover!

5) Carrying a Balance
I have friends in their 30’s still paying off student loans with pretty low interest rates. With today’s credit card rates of at least 15%, if you carry a credit card balance as a student you will be paying off those debts for a loooong time.

6) Opening Store Credit Cards for Discounts
It seems every time you buy something at Best Buy, the Gap, or any other retailer they always ask if you’d like to save X% today by opening a store card. When you’re a broke college student the idea of saving money sounds great! However, if you open a card at every store you shop at it will hurt your credit score. Plus if you have all those cards, you’re probably more likely to spend more money.

7) Overspending, then Reporting Your Card Stolen
I knew of several cases in college where someone charged hundreds of dollars they didn’t have over Spring Break, then called up the credit card company claiming their card had been stolen and that the charges weren’t theirs. Not much to say about this one other than it’s breaking the law and don’t do it.

8) Buying an Engagement Ring
It’s senior year and you’ve found “the one”. The only problem is she wants a big rock and you’re a poor college student with no money. Of course you love her and want to make her happy, and you don’t want to hear comments about how small the diamond is for the next 20 years. Many people turn to credit cards happily offered by Zales, Helzberg, or whatever the store may be.

My question for you, do you really want to start your marriage off with thousands of dollars of debt just for a piece of compressed carbon? I know, I know that argument probably won’t fly with the Missus. If you don’t have the money for the ring she wants be creative. Find a way to talk her into downsizing, borrow from your parents, or do something other than going into debt for diamonds!

9) Paying For Friends
The great thing about college life is the people you go through it with. Countless midnight pizza runs, poker late into the night, and road trips all build memories that last a lifetime. When you’re headed out for one of these adventures you don’t want anyone to be left behind because they don’t have the cash. It’s so easy to say, “I’ll put it on my card” or “the next round’s on me”. I’m not saying don’t help out your friends. Just make sure you have the money to pay the bill and that you’re not doing it all the time.

10) Forgetting to Pay the Bill
College is full of classes, sports, homework, parties, dating, and just learning to be on your own for the first time. Who has time to remember to pay the credit card bill? Plus if your dorm room is as messy as mine was you probably couldn’t find it even if you remembered! The unfortunate part is that missing your payment will not only cost you a $30 late fee you don’t have the money for but even worse it will put a mark on your credit history that will follow you around for years once you’re out of college.

Credit Card Cum Laude
If you can avoid making these mistakes you should graudate not only with a college degree but a good credit report and lots more money in your pocket!

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Win Free Financial Advice – Share Your FinanceSpirations!

Who inspired you financially in 2006? The blogosphere is full of financial wisdom and inspiration. Where did you find your most helpful tip or most inspiring article in 2006?

I challenge you to let everyone know which site or article made a difference in your personal finances last year. Let’s highlight your successes and the people that helped make them possible! One lucky submission will win a free 1 hour consultation with a certified financial planner.

Kristine McKinley is a CFP and CPA from Beacon Financial Advisors whom some of you may recognize from her contributions to various finance carnivals. The winner of the challenge will get a mini-version of her Right Start Financial Checkup. The prize is one hour of phone consultation with Kristine on your investment or tax issues.

So how do you participate? It’s easy, here are the rules:

1) Write about how a personal finance blogger inspired you financially in 2006.
Submit your stories via my Contact page or by email and I’ll post them on this site under the category of FinanceSpiration. If you have a site of your own, post your entry there and link back to this contest.

2) Voting
Everyone’s favorite story will be chosen for the people by the people! Get out and read the submissions, then vote for your favorite success stories by leaving a comment on their post. Of course you can vote for more than one.

The entries submitted directly to me can be found under the FinanceSpiration category. Any story written on another site linking back to this contest can be found in the comments/pingbacks section at the bottom of this contest.

3) Winner
Whichever submission has the most comments by the end of the day January 22nd wins! At the end of the contest, I’ll write a summary post and announce the winner.

Kristine will contact the winner to schedule the meeting and determine the personal finance questions to be covered in the consultation.

Contest Updates
I’ll be giving updates on the contest over the next two weeks so subscribe to my feed to stay in the loop.
Good luck!

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The Problem with Annual Pay Increases

How much extra pay did your efforts at work earn you last year ?

What Incentive?
I’m not sure how the 3.5% annual merit increase I received yesterday is supposed to motivate me to work hard in 2007. Don’t get me wrong, I’m grateful to have a steady job and that my pay is increasing at all. However, I don’t think our system of annual merit increases offers much in terms of incentives for me to be a better worker.

Scarcity Mentality
At the end of the year each department gets a shared pool of money to allocate to its employees for the merit increase, so all of us in my group are competing for the same fixed amount. The amount of the pool is a certain percentage of the current combined salary of the group; the percentage is based on how well the company did financially during the year.

So if Human Resources decides our group pool is 2.5% of our current salaries, then the baseline merit increase for each person is 2.5%. If someone did a really good job that year you can increase their percentage but that means you have to take away from the amount you give someone else.

Is the Work Worth the Money?
What usually happens is that most people get right around the baseline increase, the poor performers get maybe .5 – 1% less, and the top performers get .5 – 1% more. That means I could work my butt off all year and earn just $300 – $600 more than the guy next to me that had a horrible year. Taken over the course of a year, this breaks down to a few extra dollars a workday.

With the exception of some time off for the holidays, I’ve been working long hours the last few weeks to make sure our projects are a success. It doesn’t seem to me that a few extra dollars a day is worth the time away from my family and the stress I’ve been under.

The Alternative
One thought I’ve had repeatedly is that I should put in the bare minimum at work and concentrate my efforts on earning alternate income from home. It would be a difficult thing for me; I always like to perform the best in all that I do. However, working hard just to keep my salary up with inflation doesn’t seem to lend itself well to enjoying life and building wealth. If I’m going to be slaving away, mine as well be working for myself.

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Carnival Roundup – Bringing in the New Year

It’s been a fun week, lots of good stuff to read to get us started off right in 2007. Most of the articles I contributed to Carnivals had a connection to the new year.

I talked about the benefits of rebalancing your portfolio at the Carnival of Investing. The end of the year or start of a new one is always a good time to take stock of your investments and make any needed changes.

I talked about how we’ll be turning into a single income family in 2007 at the Festival of Frugality. We’ll have to make some financial changes but it’s worth it have my wife home with our new baby.

I’ve had a good year selling on eBay and am looking to improve in 2007. I share some personal finance tips I’ve learned as an eBay Powerseller in Turning Trash into Cash at the Carnival of Personal Finance.

If you’re just now reading my post on Employer Matching Gifts then you missed the boat for 2006 but make sure you take note in 2007. This article was featured in the first edition of the Carnival of Ethics, Values & Personal Finance over at Money and Values.

Thanks to Steve at Adventure Money, Henry at Binary Dollar, John at Mighty Bargain Hunter, and Penny Nickel at Money & Values for hosting the carnivals!

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Learn from Dick and Jane. Don’t Stop Investing, Don’t Be a Dick!

The Story
Dick invested $2,000 a year from age 25 to 35, then stopped investing.

Jane invested $2,000 a year from age 35 to age 65. When looking back at her gains she realized that even though she invested more than Dick and they both earned the same annual investment return of 8%, he ended up with $314,879 while she only had $244,692.

The Moral
Begin investing early and put the power of compound growth to work for you.

The Big Question
What I want to know is why Dick stopped investing? If he had continued investing $2,000 annually until he was 65 he would have ended up with $559,562!

Dangerous Example?
I’ve seen this example used many times in the world of personal finance. What message is it sending? People may read it and say, “Okay, I’ll save $2,000 a year for the next ten years then I can stop investing and I’ll be set when I retire!”.

The Alternative
So should the example not be used? I think it does illustrate the point well and could be much improved by simply including how much money Dick would end up with if he’d only kept investing $2,000 annually until he was 65. Then it would convey not only that it’s important to start early but also to be consistent and keep investing.

So what have we learned? Don’t be a Dick! Start investing early and don’t stop!

Thanks to Lazy Man and Money for bringing common investing advice pet peeves to mind with his article.

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Caught Between Doctor and Health Insurer. What to Do?

A co-worker is stuck in the middle between his doctor and his health insurance company.

He had a medical procedure in the spring of 2006. According to his doctor, the claim was filed with his insurance company three different times. According to his insurance company they never got the claim.

The doctor is fed up, refuses to file the claim again and is sending the $300 bill to a collections agency. The insurance company says the claim should have been filed within 30 days of the service. If the doctor resubmits the claim they may process it but no guarantees.

Both parties have pretty much said they are through working together on the issue and my co-worker may get caught holding the bag. He came to me for advice, I’ve never been in this situation before, thankfully, so wasn’t sure what to tell him.

Have you ever gone through something like this? What should he do? Who can he call to help get his issue resolved?

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How Discounting the Value of Your Home Could Keep You Out of Financial Trouble

In a comment on my post about the Dangers of Owning Your Own Home, Enough Wealth, pointed out that “home equity IS part of your net worth” and what you do with the realized value once its sold is irrelevant”.

From a financial perspective I agree that the equity in your home does make up a portion of your net worth. However, I think that it’s psychologically unhealthy to factor in the appraised value of your home on your asset side of the personal finance ledger for several reasons.

Squandered Gains
I agree that a person could realize the gain from their home by downsizing or renting but many people in the US today don’t have this frame of mind. I think the unfortunate mentality that you always need a bigger, better, fancier house frequently keeps people from turning their home appreciation into cash.

Speculation
Every time I hear someone excitedly talk about how their house has appreciated by 35% in just two years I think back to the tech boom and how so many people were adjusting their retirement plan years ahead based on the booming market. If you make your financial plans based on an “appraised” value of your home and the assumption of similar continued gains you may not save and invest as much as needed, thinking your home appreciation will make up for it.

Liquidity
I think investing in real estate is a great way to grow your wealth, I do it, but I don’t think you should look at your primary residence as an investment you can easily cash out of. Your home is not a liquid asset. In all likelihood you can’t just sell it tomorrow for the appraised value, like you could a stock or a mutual fund. Depending on a variety of factors, you may have to settle for much less than you think your home is worth. Plus you don’t have to pack up your entire life and move to sell a stock.

Discounting Home Value
That being said, your down payment, monthly payments, and home appreciation do build up equity in your home that represent dollars you’ve accumulated over time. It would be nice to reflect that in some way on your personal finance balance sheet. Perhaps a good way to do this is by discounting the equity you’ve built in your home.

The discount would allow for things like the cost of selling, moving costs, adjustments in the housing market, and any other fluctuations. In my opinion, a conservative approach would be best when determining the discount. The larger the discount percentage used the less likely you are to overvalue the asset and make financial decisions based on inflated numbers.

For example, let’s say you have built $50,000 worth of home equity through down payments and monthly principal payments. If you discount that $50,000 by 50%, the $25,000 worth of real estate in your net worth will reflect the financial value you’re building while also setting the realistic expectation you can actually turn your home into that amount of cash.

Supported by The Thrifty Scot
By having your mortgage already in place before starting to look for a new home takes away much of the stress associated with moving. The Thrifty Scot has access to over 8000 mortgages and specializes in bad credit remortgages

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The Dangers of Owning Your Own Home

Blueprint for Financial Prosperity is running a Devil’s Advocate series and his first article is Rent Forever, Don’t Buy A Home. We own our home and despite the repair work and property taxes he mentions, I’m glad we decided to buy our own place. However, there are two that mistakes I think it’s easy for homeowners to make.

Over Valuing Our Net Worth
Many people figure the value of their home into their net worth. I don’t like this for two reasons:

The first is that, like a stock, your home isn’t actually worth anything until you sell it. Once you sell it, where will you live? If you buy another house then you’re just locking that money back up in property again. You won’t actually realize the gain until/if you sell your house and move into a smaller, cheaper one.

The second is that people sometimes feel they don’t have to save or invest as much because, according to an appraiser, their home has appreciated a great deal. This can be dangerous because housing prices can fall and if you haven’t been saving and investing then you could be in a pickle. Your house is only worth as much as someone is willing to pay for it.

Reckless Borrowing Against Equity
How many advertisements do you see or hear a day for home equity loans? If you’re sitting on thousands of dollars of equity in your house, it may be tempting to tap into it to take that trip you’ve always wanted or to speculate on a new great stock tip you don’t want to miss out on.

If you’re considering borrowing against the equity in your home, sleep on it for a while. Think about how nice it is to have a roof over your head. Is what you stand to gain from a home equity loan worth the risk of potentially losing your home?

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Win Free Financial Advice! The Small Idea, Big Change Challenge

After some suggestions by J.D. at Get Rich Slowly, this contest has been relaunched here. Looking forward to hearing about your FinanceSpirations!

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The blogosphere is full of financial wisdom and inspiration. Often, the smallest idea or article is all we need to help us make a much needed change in our finances. I challenge you to share what blogger inspired your financial success in 2006!Enter the Small Idea, Big Change Challenge and let everyone know what idea led to a big financial change in your life! The winner of the challenge will receive a 1 hour consultation with a certified financial planner.

Kristine McKinley is a CFP and CPA from Beacon Financial Advisors whom some of you may recognize from her contributions to various finance carnivals. The winner of the challenge will get a mini-version of her Right Start Financial Checkup. The prize is one hour of phone consultation with Kristine on your investment or tax issues.

So how do you win? Here are the rules:

1) Write about any small idea from a personal finance blogger in 2006 that inspired you to a big financial change.

It doesn’t have to be a small idea but usually that’s all it takes. If you have a blog of your own, post your entry there. If not, send me the information via my Contact page and I’ll post it on this blog.

The submission should contain two things:

• A link to original post from the blogger that inspired you.
• A link back to this post.

2) Voting
The winner will be chosen for the people by the people! As the submissions link back to this post, you’ll see them at the bottom of the page. Get out and vote for your favorite success stories by leaving a comment on their post. You can vote for more than one.

3) Winner
Whichever submission has the most comments by the end of the day January 15^th wins! At the end of the contest, I’ll write a summary post linking back to all of the submissions and announce the winner.
Kristine will contact the winner to schedule the meeting and determine the personal finance questions to be covered in the consultation.

Contest Updates
I’ll be giving updates on the contest over the next two weeks so subscribe to my feed to stay in the loop.
Good luck!

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I Wonder What lifehacker, problogger, & copyblogger are Reading Today

You could find out not only what your favorite bloggers are reading but also what they think of it if only they used a cool tool called coComment!

The Comment is the Blogosphere
Okay, without blog posts there could be no comments, but without comments, how do you know anyone is reading your stuff and what value it is bringing to them? coComment lets you track the comments you leave on other blogs and then list them on your own blog so your readers can see what you’re reading and your thoughts.

End of the Link Dump?
Think of it. You wouldn’t have to take the time to aggregate and summarize your favorite reads of the day. If you enjoy a blog post, leave a comment, tag it with coComment, and your readers will take note. Of course you wouldn’t get a coveted link from an A-lister but if you write good stuff I imagine the comments will keep coming. The traffic they bring should result in links a plenty.

Boon for Comments
As a new blogger I’ve learned that a large part of it is reading other people’s stuff. I’m often disheartened when hours of reading and commenting on blogs has passed and I have no new content on my site! Now with coComment I can interact in the blogosphere while feeding my blog at the same time. Maybe people that use coComment will be more likely to take the time to add their thoughts to the blogosphere.

Blogroll 2.0
It seems to me that a blogroll is “so web 1.0” and that coComment is sort of a Blogroll 2.0. Instead of a static list of links, you provide a dynamic directory of what you read. Specific recommendations of a certain post on a certain site and what you think of it seems to add much more value to your readers and the blogging community.

Leave a Comment
I’m sure as a new blogger, there is something I’ve overlooked or oversimplified in my analysis of how coComment could change the way we blog. If that’s the case, leave me a comment and let me know.

Check It Out
See the bottom of my right sidebar for an example of coComment in action. Given the nature of this post I should probably move it to a more prominent position but it’s the middle of the night and I don’t want to break my blog theme right before you let everyone know about this great article!

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