RIT - NTID - News - Students: Avoid Credit Card Debt to Bank on Your Financial Future

October 31, 2011

Hon. John Ninfo II, a federal bankruptcy judge, talked to RIT/NTID students about the perils of credit card debt.

Story Highlights:

Judge Ninfo’s tips to avoiding debt:

1) Cash is king. Pay cash whenever you can rather than using a credit card. If something costs less than $20 or you can eat or drink it, you should be paying cash for it. If you pay everything with cash, you will likely save 20% of what you would otherwise spend in a year.

2) Always pay off the entire credit card bill when it comes; if you can’t, pay as much over the minimum due as you can. And never miss a payment or pay late. That will ruin your credit rating, create additional late fees and increase the percentage rate on your remaining balances.

3) The best way to manage debt is to avoid it. If you are already in debt, put yourself on a budget to reduce it.

4) Have a budget and stick to it. A budget will help control your spending. Determine what your needs are versus your wants, wishes, luxuries and conveniences.

5) Save 5 to 10% of everything you earn for anticipated expenses. Expect you’ll have large car or home repairs in the future. If you get in the habit of saving at a young age, you will save for the rest of your life. And set goals. Should you save for an iPad, or retirement?

Although he makes more than $160,000 a year, a federal bankruptcy judge is not ashamed to say he drives a 10-year-old car, doesn’t have a cell phone and buys his gas and groceries where he can save a few bucks.

Hon. John Ninfo II, who serves in the Western District of New York, was guest speaker last week at a meeting of the Ellie Rosenfield Personal Finance Student Club at Rochester Institute of Technology’s National Technical Institute for the Deaf.

Ninfo sees men and women every day in his court applying for bankruptcy. It doesn’t matter where they live or what jobs they have. Employed engineers from the suburbs, teachers from the city, even a college comptroller were recent visitors to his court and were hopelessly in debt. It’s not uncommon for people to come to court with debt four times higher than their annual salary.

“Underlying almost every bankruptcy is credit card debt,” Ninfo said. “We’ve had a real problem of financial illiteracy in this country for a long time,” he said.

Ninfo created the Credit Abuse Resistance Education (CARE) program in 2002 and speaks with high school and college students across the country to warn about personal finance and credit card abuse. He says students need to start practicing responsible spending and saving habits now if they want to avoid living their lives in debt.

“Too many young people and adults think a credit card is new money, more money or free money,” he said. “It’s debt. The worst kind of debt you could possibly get.”

Ninfo says he normally carries $70 in cash, and prefers to pay cash for everything when he can. He owns one credit card, and uses it only to buy what he can afford. And he pays the entire amount owed with each statement, so he doesn’t have to pay any interest.

“Use credit cards just for convenience, as another way to spend money you already have in the bank,” he said.

Another reason to avoid using a credit card is that you’ll buy more things when you can just hand over a plastic card – which isn’t associated with money in most of our minds.

When McDonald’s began accepting credit cards, the average price of a purchase jumped from $4.75 with cash, to $7 when a credit card was used, he said. “Use cash as much as possible because you’ll make different spending decisions.”

Ninfo said it is understandable students get low-interest loans for their educations. And it’s understandable to get a car loan – but only once.

“I don’t believe that any driver should have a car loan after their first car,” he said. After that first loan is paid off, continue the monthly “payments” into your savings account to pay for your next car years down the road.

One student asked Ninfo’s opinion about credit cards that provide rewards of airfare, cash back or discounts on future purchases. The judge said they really weren’t incentives for him to own more than one card. But if people wanted cards with extra rewards, be sure they don’t charge an annual fee, and be sure to pay it off each month to avoid interest. Otherwise, the interest you pay will be more than the incentive for having that card.

Ninfo says he’s not tempted by accepting other credit cards with lower percentage rates.

“I don’t care what the term rates are, I’m never going to pay a cent because I pay it off every month,” he says.

Another student wondered what he could do to build his credit rating because he doesn’t own a credit card.

Ninfo said the student probably already has a credit history if he pays a utility bill, rent, a car payment or owns a cell phone. If any of those bills are late, it hurts his credit history.

Having a poor credit rating and mismanaging your personal finances has dire consequences. Often no money is saved for expected large bills such as car or home repairs, college tuition, and retirement.

And credit history is often checked by prospective employers, graduate school and student loan officers. People have not been offered jobs or an apartment because of their poor credit history.

“People with debt problems don’t perform as well at work or at school,” Ninfo said. “They don’t want to take a chance on you.”

Ninfo also showed several credit card commercials, where the credit card is used with ease and brings happiness.

“Credit cards are not your friend. They can be your worst enemy,” he said.

More Images: