By Jonathan Velez
Pulse Staff Reporter
Ruth Rojas, Esther Galvan and Deyanire Sanchez share stories about past financial decisions. Photo by Jonathan Velez.
Credit, equity, savings, checking and gross income—the amount made before taxes are deducted—all play a part in adulthood. Many college students are unaware of the language associated with banking and credit.
Many have heard the phrase, “as broke as a college student,” but you don’t have to be broke to be a college student. You can learn from previous mistakes and prepare yourself for real-world situations.
The public school system teaches young students language arts, math and science, but many schools lack classes to establish a solid financial foundation.
“I mean c’mon you’re 15, you have a credit card, why not go crazy for it?” said, Deyanire Sanchez, a sophomore Cosmetology major at Palo Alto College.
At 15, Sanchez was given a credit card by Wells Fargo with a limit of around $1,200. She soon realized that the interest rate was too high and the bank gave a credit card to a minor, knowing that she only worked a part-time job. Sanchez had racked up over $3,000 in interest payments, but the bank later agreed to a settlement and cancelled her debt, which restored her credit.
“I would never, never go back to Wells Fargo again. They should have never offered me a card at 15,” said Sanchez.
Sanchez now has a better understanding of how credit cards work and the responsibility it takes to stay debt-free.
According to www.debt.org, credit is buying something now and agreeing to pay for it over time. Your credit score is how banks and businesses will trust you to purchase a product now and pay for it later. If your credit score is low, then the banks and companies will not trust you with loans for items you may need, like a car, or a house or a school loan.
“Don’t be afraid to check your credit score before applying for a loan because your credit score is essential to your loan amount and interest rate,” said Clarisa Rivera, a credit clerk employee at South Trust Bank.
People continue to take out loans to pay off debt. While this is an option, it may not always be the best route to take when attempting to build credit.
“It’s better to pay off your debt monthly and acquire equity than move your debt from place to place,” Rivera said.
Your savings and checking accounts are also vital in knowing how the financial system works. The bank tracks and monitors these accounts and can use them to determine if you’re financially fit. Therefore, it is important that you learn how to save.
“When you are young and starting out, maybe in college or working at your first job, it’s easy to be caught up in living check-to-check. It is crucial to create a financial foundation for your future self,” said Annabel Urias a college graduate with a bachelor’s in Marketing and Business. Instead of blowing through your paycheck, set aside money in a savings account each month at a bank or a credit union.
Understanding that today’s spending can affect your future savings for big-ticket items, like a home, will enable you to make better financial decisions; for example, if you have a credit card, you need to learn how to live within your means and budget the money you earn. If you do choose to take out a credit card, you want to keep a few things in mind.
Let’s say you buy something for $1,000 with your credit card and the bank charges you 16 percent APR (interest) with a $50 monthly payment. Of the $50 payment, $36.67 will be applied to the principal amount and the remaining $13.33 will go toward the interest. It will take you two years (24 months) to pay off the $1,000 plus an additional $170.90 in interest, but only if you refrain from making more purchases during that time period. Use this handy credit card payoff calculator to figure out how long it will take you to pay down your credit card debt.
Financial growth doesn’t happen overnight, but with self-discipline and diligence, you can live life knowing that you are financially stable. With money being one of the leading causes of stress in America, getting a handle on your finances and spending will greatly decrease stress levels and ensure that your day-to-day living is smooth sailing.