6 steps for handling your 1st credit card wisely

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I just opened up a Citi credit card for students. I plan on using this card only to buy my books and supplies -- maybe gas a few times. I understand I have to pay it off, but I'm new to credit cards. Once I'm "done" with the card and no longer need it, and the balance is $0, then what? Do I cut it up? Close it out? Do I still get charged any sort of interest? Thanks. -- Aubrey

Dear Aubrey,
I wonder if you're aware of what an advantageous position you're in. You've already cleared the primary hurdle people new to the world of credit must leap: getting your very own first credit card. Even better, it's fresh and new with no damage to fix. Sweet!

So, before I tell you what to do with that credit card when you are "done" with it, I want to explain how to manage your money and charge wisely so it remains unblemished as you're carrying it around in your backpack.

• Make a detailed list of all of your monthly expenses. This shouldn't take more than an hour, so grab a pen and paper, have a seat, and jot down everything you'll be spending your money on in a month. Be conservative. List food, rent, entertainment, transportation and the like. Then consider all the things that will come up once in a while, such as tuition, textbooks and class materials. Divide those by 12 (for each month in a year) and add them into your monthly expenses.
• Tally your income and subtract your expenses from the total.  Grants, scholarships, student loans, work study, parental support, a job -- they all count as income. Add them all up, and subtract your expenses. You should come out at least even, but it's better if you have some cash to spare. Having been a starving student once myself, I know saving money while you're in college isn't always feasible, but if you can, do it.
• Make a pay-with-cash/pay-with-credit list. Decide now which items you'll break out the card for. Think small-but-regular charges. You're on the right track with planning to use it for gas and supplies. However, as text books can be over $1,000 each semester, it would be better for you to pay for those in cash. Your credit card bill should always be low enough to repay in full within the interest-free grace period. One day, you may want to finance more-expensive items for a few months, but right now, stick to maintaining a zero balance.
• Pay on time, every time. Nothing says, "Gosh, that person is responsible," more than no debt and timely payments. Use that laptop of yours and enroll in online banking so you never have to mail a check.
• Make time for money. If you're like most students, you won't have a lot to work with, which means you'll have to pay close attention to cash flow. I implore you to carve out a few minutes each morning to check all of your account balances. You can prevent overspending and getting into debt by being aware of how much money you have and how much you've already charged.
• Keep track of your rewards. You don't mention which particular student card you have from Citi -- they currently offer six varietals -- but all offer rewards program. This means that each time you pay with your credit card you build points that you can redeem for everything from coffee drinks to airplane tickets. Keep track of those points and use them for things you need. Don't get caught in the trap of charging random goods and services just to add to your point balance.

Stick to this easy system and you'll leave college with no consumer debt, some free stuff from your rewards program, a credit report that glows with your wonderfulness, and a terrific relationship with a major bank.

Oh, and ditch the card when you complete your undergraduate degree? No! You'll have spent four years or so developing an terrific credit history with it. As long as the terms continue to suit your needs, keep it active.  You can even go for a master's program in credit by adding a premium card to your wallet.

See related: How to face a student loan debt disaster

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: September 8, 2010

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