Student Credit Card and Credit Education Blog

Banks and credit card companies are very clever. They try and make their offers as enticing as possible for those who are interested in their “wares”. You may see a “5.99 introductory APR” for a credit card. So how does that compare to an APY?

It’s actually pretty simple. APR stands for Annual Percentage Rate and refers to the amount of interest you pay each month on your balance. So, if you had a $1,000 balance, at the end of the year your balance would be $1,200. Easy, right? Actually, no, that amount isn’t correct, provided your interest accrues monthly.

This is where APY (Annual Percentage Yield) comes into play. If you were to divide 20% by 12 pay periods, you get 0.016. You would then multiply the 0.016 by the $1,000, which equals $16. This is how much interest you owe after the first month. The second month’s balance is no longer $1,000 - it’s $1,016. So, you’d multiply 0.016 by $1,016, which equals $16.26. By the end of the year your total would actually be a bit higher than if you used the APR - it’s $1,210.

A simple formula for calculating APY is
:
First, provided your interest accrues monthly, get the monthly percentage rate (APR = Monthly Rate X 12).

Then, use this formula:
APY= (1 + Monthly Rate) ^ Months per year - 1
Some simple computation gets you the answer I arrived at above.

So, make sure you keep the APR/APY in mind when calculating the interest you’re accruing on your credit card.

Want to read more about comparing APR vs. APY?

So, you’re in school and having a great time. Studying hard and still enjoying the weekends. (Un)fortunately, a huge mall is very close to your dorm, and the school has graciously provided a shuttle to whisk you there on Saturday afternoons. All the best stores are there and you’ve recently signed up for a credit card specifically for college students, which happens to be burning a hole in your wallet.

Before you know it, those three new shirts, two jeans, six CDs, and the latest Seinfeld DVD all appear on your most recent credit card statement. And you don’t have any way to pay for it.

This is why credit card companies pitch so hard to college students. They are hoping that the above situation takes place as often as possible. Sure, your $455.09 bill may not seem like a lot, but if you were to put off paying it for, say, 5 years. Here’s the numbers you’d be looking at:

Assuming your annual percentage yield (APY) is 22%.
After Year 1: $555.21
After Year 2: $677.36
After Year 3: $826.37
After Year 4: $1,008.18
After Year 5: $1,229.98

Scary stuff. So, do what you can to pay it back. Are you simultaneously adding money to a savings account while you have credit card debt? Stop. Right now. Take all the money from your savings account (which is earning 5% at best) and apply it to your credit card balance. You’ll essentially be saving significantly more by eliminating that 22% APY debt.

Alternatively (if you haven’t already), you can take out a federal student loan, which not only has a much lower interest rate, but the interest is also tax-deductible. Even a private student loan is a better option. It does have a higher interest rate, but it is still half of what your Visa hits you with.

Whatever you do - keep that credit card debt as low as possible!

I’m sure you’ve seen advertisements for various online institutions that advertise “e-savings rate of x%” or something similar. And you may be thinking whether or not they are more beneficial than your local national chain.

As with most financial decisions, there are pros and cons. However, for the most part, the long-term benefits of using these banks, such as ING Direct and Emigrant, outweigh the negatives.

Pros:
- Significantly higher interest rates
- Access your account through any Internet connection
- Most have no minimums
- Other great features (referral bonus, excellent mortgage rates, etc.)

Cons:
- Actual access to your money is a bit more difficult
- Some people may be wary of banking online (even though you shouldn’t be!)

I have an account with ING Direct and find their site and customer service to be top-notch. In order to access my money, I also have a Bank of America account, where I keep small amounts of money. This account is solely because I have ATMs close-by, so I have easy physical access to my money. Every month, I then transfer money to ING Direct, in order to enjoy the higher interest rates.

Want a great way to start saving for your future? Sign up for one today!

P.S. This is a fantastic article from CNN Money that describes 43 recommendations if you have just received $5,000!

You’ve heard your parents discuss it when they applied for a mortgage. And maybe the dealership asked for your score when you bought your car? So, maybe a formal definition of this elusive statistic is in order.

A credit score is formally defined as “the credit worthiness of a borrower, which is primarily determined by the timeliness of past loan payments via a number score ranging from 300 to 900″.

What does this mean?

It simply signifies a level of trust. If you’ve been good about paying back loans in the past, statistically you should do the same for any future borrowing you might do.

Student credit cards are an easy way for you to initiate building your reputation and level of trust. Start small. Charge only a few things at a time. Just be sure to pay everything back, as student credit cards have very high interest rates.

Looking for more info on credit scores?

Or are you more interested in an overview on student loans?