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College Students and Recent Grads

A Beginner’s Guide to Using a Credit Card

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Are you thinking about opening a credit card? Or have you recently opened a card? You may be overwhelmed by the various terms associated with credit cards, but worry not — we’ve compiled a guide to walk you through the common fees you may encounter as well as how to use your credit card beneficially.

How credit cards work

On a basic level, credit cards are lines of credit that you can use over and over again as long as you pay off your balance. They’re a handy way to pay for purchases and can help you build credit when used responsibly. Credit cards usually have detailed terms and conditions that list fees, rewards, benefit restrictions and more. As a new cardholder, you may be confused by these terms, but we’re here to help you understand common features so you can avoid unnecessary fees.

Typical credit card terms

  • Annual fee: This is the fee you will be charged each year — if your card has one.
  • Credit limit: The maximum amount of credit you can charge on your card.
  • APR: This is the annual percentage rate or, simply, the interest rate you will be charged on balances carried. Since the rate is annual, divide it by 12 to get your monthly interest rate. Most often, this rate is variable and fluctuates with the prime rate, so your APR may change at any time.
  • Cash advance APR: If you use your card to take out cash, you will be charged at a higher interest rate versus regular purchases.
  • Penalty APR: This is a higher APR than you are typically charged and is often the result of a late payment or returned payment. The penalty APR can be in effect for several months or indefinitely, depending on the issuer.
  • Intro 0% period: You may be fortunate to have a credit card that offers an introductory period — upward of six months — where you can benefit from carrying a balance and not being charged interest during that time. The terms for these intro periods vary.
  • Late payment fee: If you pay late, you will incur a fee typically greater than $30.
  • Returned payment fee: Payments you submit that aren’t approved may be subject to a fee usually upward of $30.
  • Foreign transaction fee: Some cards charge a fee for purchases made outside the U.S. that is typically around 3%.
  • Cash advance fee: Cash advances you request most likely will be charged a 3%-5% fee of the amount requested.
  • Balance transfer fee: Any balances you transfer from an existing credit card to an eligible new card may be subject to a balance transfer fee, on average 3%-5% of the amount transferred.

Other common credit card features

  • Sign-up bonus: Your card may offer a sign-up bonus, which typically requires you to spend a certain amount within a given time period (usually three months) to receive a bonus.
  • Rewards: Many credit cards offer rewards programs that can earn you cash back, points and miles for purchases. This can be a great way to be rewarded for your spending, but don’t overspend and risk falling into debt for the sake of earning rewards.
  • Alerts: Issuers often let you set up fraud or balance limit alerts and reminders when it’s time for a payment.
  • Autopay: If available, set this up so you avoid late or missed payments.

Choose a card that fits your needs

There are numerous credit cards available for a wide range of needs from building credit to earning rewards, to getting out of debt and more. You should decide what your goal is with a credit card, then compare cards from various issuers prior to applying. Some issuers allow you to fill out a pre-qualification form that performs a soft pull on your credit to see if you may qualify for a card. This does not affect your credit score and is a great way to shop around for the best deals. One note: Pre-qualification is not a guarantee of approval.

Read our list of the best credit cards in a variety of categories to find a card for your needs.

Read the terms and conditions

An important step prior to applying for a credit card is to review the cardmember agreement. Each card has different rates and fees that vary based on any number of reasons, including credit history, actions you take (or don’t take), the prime rate in the market and more. It’s key to review the cardmember agreement so you’re aware of any fees you may be charged as well as how the card works. On our site, we’ve reviewed cards from top issuers as well as lesser known cards to help you make sense of some of the terms you face — but still be sure to read the cardmember agreement before you apply.

Practice responsible credit behavior

Make on-time payments. Perhaps the most important part of maintaining a credit card is to make timely payments. By doing so, you avoid late payment fees and penalty APRs that hurt your credit score. Autopay is a helpful feature to ensure your bill is paid on time, or you can set up reminders.

Pay your balance in full. A great goal is to always pay your bill in full so you don’t carry a balance. Any unpaid balance will be charged interest (unless associated with a promotion) and can cause you to rack up debt. This also negatively affects your credit score.

Avoid overspending. It’s common for people to mismanage their credit cards and be tempted to overspend, but with proper budgeting, you can avoid falling into debt. A good rule of thumb is to only spend what you can afford to pay at the time of purchase — this way you know you can pay off your balance. Also, if you have a rewards card, don’t overspend just to earn rewards because the debt you incur will counteract any rewards.

Keep a low utilization rate. The percentage of available credit you use is known as utilization, and is a factor in your credit score. It’s important to keep a low utilization rate so issuers see you’re not a risk. Constantly maxing out your card raises concerns for issuers and can cause you to fall into debt.

Check your monthly statements. By simply reviewing your monthly statements, you can proactively notice any fraud that may occur on your account and isn’t flagged by your credit card company. Most companies send notifications if they think there’s fraud on your account, but they don’t catch every instance of suspicious behavior.

Check your credit score and credit report. Checking your credit score on a monthly basis is a good habit to get into and can promote positive credit behavior. Read our guide for where to access your free credit score and other credit tips. It’s also a good idea to check your credit report every few months to make sure everything checks out and no unknown accounts are open in your name. is the only source for authorized credit reports from the three major credit bureaus and you can run one report every year for each bureau — we recommend spacing them out every four months.

Secure your card. Don’t leave your card unattended and don’t loan it to friends since neither of those actions have a positive result. Your card is your responsibility and should be treated with care. If you happen to lose your card or it’s stolen, contact your issuer immediately and put a hold on your account until your card is found or replaced.

Don’t request a cash advance. Cash advances are notorious for high fees and tricky terms than can draw you into debt, so it’s best to avoid them at all costs. If you need cash, look to personal loans, which may have better terms.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at [email protected]

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College Students and Recent Grads

How to Pay Off Private Student Loans: Problems and Opportunities

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


Americans owe billions of dollars’ worth of private student loans, and that sum is on the rise. Unfortunately, knowing how to pay off private student loans isn’t always easy, especially since private loans don’t come with the same flexible repayment options as federal ones.

But whether you’re looking to lower payments or just retire your debt faster, there are useful strategies for repaying private student loans. Let’s explore some of your private student loan repayment options, starting with a look at the difference between private and federal education debt.

How to pay off private student loans vs. federal ones

If you’ve got federal student loans, it’s fairly easy to adjust your monthly payments via an income-driven repayment plan, graduated repayment, or a number of other options.

Private student loans are a different story. Generally, private lenders expect you to follow through on the contract you signed when you first borrowed. If you agreed to pay a certain amount each month for 10 years, that’s what the lender expects you to do.

But as you know, circumstances can change, and sometimes you lose your job, go back to school or encounter an emergency. In this case, your lender might be willing to work with you to adjust your payments — but unfortunately there’s no guarantee.

This lack of flexibility is one of the biggest problems with private student loans. Another is the lack of consistency among lenders — your situation could vary wildly depending on what lender you’re working with.

But don’t worry. Even if you won’t have all the choices that you would with federal loans, you do still have some solid private student loan repayment options. Here are four moves to consider:

1. Adjust your payments through refinancing

If you meet underwriting requirements for credit and income — or apply with a cosigner who can — you could restructure your private student loans through refinancing.

When you refinance, you swap one or more of your old loans for a new one. This new loan could have a better interest rate, thereby saving you a nice chunk of money over the life of your loan. Plus, you get to choose new repayment terms with adjusted monthly payments.

If you want to pay off your loans fast, you could choose a shorter term with higher monthly bills. On the other hand, if you’re struggling to keep up with payments, you might select a longer term of 10, 15, or 20 years to lower your bills.

Although a longer term will cost you more in interest overall, you’ll feel like you’re saving money from month to month; this approach could be a huge help if you’re working with a limited budget. And if you start making more in the future, you could always throw extra payments at your student loans without penalty.

Note that if you were refinancing federal loans, it would turn them private and you would lose the flexible options that come with federal debt. But since you’re refinancing loans that are already private, you don’t have to worry about this sacrifice.

Make sure to research various lenders before choosing an offer so you can find one with a competitive interest rate — and sometimes, with useful perks as well. Earnest, for instance, has deferment options, and SoFi even offers career coaching. By choosing a lender with a good reputation, you might find your private loan repayment options are more flexible going forward.

2. Ask your lender about forbearance and deferment options

Refinancing can be a useful option for borrowers who have a cosigner or whose finances are in good shape, but maybe you need student loan relief now. If you’re struggling to pay back your bills, ask your lender about forbearance or deferment options.

Lenders such as Sallie Mae and CommonBond will temporarily pause payments on your loans in the event you lose your job or go back to school. This postponement of payments could be a huge help until you get back on your feet or graduate.

That said, not all lenders offer this option — check your student loan repayment contract to see if deferment or forbearance options are mentioned. Either way, it’s still a good idea to call your lender to see if they can help — after all, it doesn’t want you to stop paying your loan completely.

Sallie Mae, for instance, says: “We’ve helped customers through financial troubles and we’re committed to working with you to help you with your student loans during this period. … We can work together for a solution.”

Even if lenders don’t advertise flexible private student loan repayment options, yours might be willing to consider a new repayment plan that matches your budget.

3. Come up with a plan for targeting your private student loans

As of September 2018, the average student loan borrower had 3.3 student loans — and if you’re juggling multiple student loans, you might not be sure which ones to deal with first.

Of course, you’ll want to start by paying the minimum on all your loans to avoid default. But if you can pay a little extra each month, it could be a good idea to prioritize your private student loans over federal loans.

That’s because private debt doesn’t have the same flexible options as federal debt, and it usually has higher interest rates as well. What’s more, some private loans have variable interest rates, which could rise over time.

So if you can throw extra payments somewhere, it’s probably smart to put them toward your private loans. You might also explore the debt avalanche and debt snowball methods of debt repayment.

The debt avalanche method has you target the highest-interest debt first. This approach makes the most mathematical sense, since it will save you the most money on interest.

Note, however, that if your high-interest loan also has the highest balance, it might be years before you’re able to pay it off. If you’d rather close an account fast, consider the debt snowball approach instead. With this method, you pay off the lowest balances first, knocking them out quickly to motivate you and keep you moving forward.

Whatever you choose, devising a strategy to manage your debt will help you feel in control of your financial situation as you work toward a debt-free life.

4. Get proactive about your financial situation

Even though your student loans might feel burdensome, it’s up to you to figure out how they fit into the puzzle of your bigger financial picture. You probably have lots of financial obligations — rent, food, Netflix, etc. — and your student loan payments are just one of them.

But if you’re eager to pay off your loans ahead of schedule, you might search for ways to accomplish this goal speedily. Start by crafting a budget so you can get a bird’s-eye view of your income and expenses.

Look for areas where you can save money, whether that means moving in with roommates, spending more time meal-prepping instead of eating out, or forgoing a pricey gym membership in favor of a cheaper gym across town. Although it might involve some unpleasant sacrifices, adopting a bare-bones budget could help you pay off debt faster.

At the same time, cutting and scrimping will only take you so far, so look for ways to increase your income too. Maybe you can get a raise at work or search for a completely new job.

Or perhaps you can take on a side hustle, such as driving for Lyft or freelancing online. While you don’t want to spread yourself too thin, making efforts to pull in some extra cash could give you the means to get out of debt years ahead of schedule.

At the same time, you don’t want to sacrifice your other savings goals or lose out on valuable investment opportunities. Consider all your financial priorities carefully so you can find the right balance.

Learn how to pay off private student loans with a strategy that works for you

Private student loan borrowers share the same goal — to pay off their loans. But the strategies they use to get there might look different.

Some borrowers might slash their expenses and pick up side hustles to pay off debt fast. Others might take advantage of forbearance options to postpone payments temporarily.

Although private student loans aren’t as flexible as federal ones, you do still have options and rights as a borrower. Take time to speak with your lender about your private student loan repayment options.

By taking a proactive approach to repaying private student loans — while avoiding the pitfalls of private debt — you can find the right strategy for you as you work to conquer your debt once and for all.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads

Facing Private Student Loan Default? Here Are Your Options

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


While federal student loans come with a number of flexible repayment plans, private loans typically aren’t so forgiving. So if you’re struggling to pay your bills, it can be tougher to avoid private student loan default than it would be with federal debt.

To make a bad situation worse, defaulting on private student loans (or any loans, for that matter) comes with some nasty consequences. Your credit score could be seriously damaged, for instance, and you might end up in court.

But while the consequences of defaulted private student loans are serious, they’re also solvable. Here’s what you need to know about private student loan default and how to prevent it if it hasn’t yet occurred.

What causes private student loan default?

If you’ve got student debt, you know that not paying them could lead to default. But missed payments aren’t the only action that results in defaulted private student loans. Here are three reasons your school debt could go into default status.

1. You missed payments

As with federal student loans, private loans go into default if you don’t pay your bills. But while the federal government allows for a 270-day delinquency period before your unpaid loans are placed default status, private lenders don’t give this much wiggle room.

Some allow for three to four months of delinquency before reporting your loan as defaulted; others will label your loan as defaulted after a single missed payment.

2. Your cosigner declares bankruptcy or dies

If you borrowed private student loans for your undergraduate education, chances are you applied with a cosigner, such as a parent. Because your cosigner shares this debt, their actions can affect its status.

Even if you’re making on-time payments, your loan could potentially be considered in default if your cosigner declares bankruptcy, and in some cases it automatically goes into default if the cosigner passes away.

3. You declare bankruptcy or default on other debts

Finally, your private student loan could enter default if you file for bankruptcy or default on other debts. Even if you’re paying your student loan on time, these other financial events could trigger default. If you’re in this situation, speak with your lender or examine your student loan contract to see what could happen.

7 consequences of defaulting on private student loans

If any of these events trigger private student loan default, here’s what could happen next.

1. Your lender demands full and immediate repayment

Chances are, you defaulted on your private student loans because you couldn’t afford monthly payments. But, ironically, defaulting means your lender will likely demand full and immediate repayment of the entire loan.

Because you missed payments, your original repayment plan becomes null and void. Since this agreement is canceled, the lender may ask you to repay the debt in full.

Of course, you probably aren’t able to pay back the entire loan all at once, so you’ll need to find other ways to fix this situation.

2. Your credit score will plummet

Your lender will report your defaulted private student loan to the credit bureaus. Since a big part of your credit score is based on on-time repayment of debt, your score will likely take a serious hit.

This red mark will show up on your credit history, making it difficult to take out another loan or get other forms of credit in the future. In most cases, negative marks can stay on your credit for up to seven years, unless you’re able to file a successful dispute and get them removed.

3. Your loan could get sent to collections

After you default, your lender might send your loan to a collections agency. Once this happens, expect to get lots of calls and mail from collections agents requesting repayment.

That said, it’s illegal for collections agents to harass you — for example, they’re not supposed to contact you before 8 a.m., after 9 p.m., or at work if you’ve asked them not to. Protect yourself by understanding your rights as a borrower.

4. You might owe additional collections fees

If your loan gets sent to collections, you might get charged extra fees. Whether set by your initial contract or state law, these fees could make your debt even more expensive, sometimes even adding 25% to 40% to your balance.

5. You could get sued

If you don’t respond to attempts to collect the debt, your debt collector could bring you (and your cosigner) to court. This is more common if the lender thinks you have the means to pay back your loan but are choosing not to (and less common if you truly are in dire financial straits).

Once in court, the lender will have to verify that your debt is legitimate with the right documentation. If the debt collector wins, it could take more extreme action to collect your money.

6. You might face wage garnishment or property liens

Let’s say you go to court and lose. If it gets the appropriate court order, the debt collector could actually garnish your wages or seize your assets. This could mean it puts a lien against any property you own or a financial levy on your bank accounts.

7. You might run out the clock on your debt’s statute of limitations

As you can see, the consequences of defaulting on private student loans can get extremely serious, even leading to wage garnishment or withdrawals from your bank account. But don’t forget that you have rights as a borrower, one of which involves a statute of limitations on debt.

These statutes of limitations vary by state and typically range from three to 10 years for private student loans. Once the time limit is up, the lender can’t take any legal recourse against you.

Of course, waiting out the clock on your student debt is seriously risky for all the reasons mentioned above. Plus, you must be careful not to reset the clock on the statute of limitations. If you resume repayment at any time, for instance, the clock could start again from zero.

How to prevent defaulting on student loans

If you’re worried about falling behind on private student loan payments, here are four actions that could help your situation.

1. Try to postpone payments through temporary forbearance

Let’s say you can’t pay back your private student loan because you lost your job or are going back to school. While private lenders don’t have the same flexible repayment plans as the federal government, some will let you temporarily postpone payments through forbearance.

Although interest will continue to accrue, pausing payments could give you the relief you need until you get back on your feet. You’ll be able to stop making payments for a while without worrying about going into default. If you’re struggling, talk to your lender about temporary forbearance or deferment.

2. Speak with your lender about reduced monthly payments

Even if your lender won’t let you pause payments completely, they might be willing to reduce your monthly payments for a period of time. After all, they’d rather have you pay something on your debt than stop making payments completely.

Whether it’s interest-only payments or another adjusted amount, ask about your options. Even if the lender doesn’t list alternative payment plans on its website, it’s always worth calling to see if it can be accommodating.

3. Refinance your student loans for new terms

One surefire way to restructure your debt with new terms and monthly payments is through student loan refinancing. When you refinance, you can choose a new repayment plan, often between five and 20 years.

If your bills are burdensome, a longer plan could be the solution you need. Even though you’ll probably pay more interest over the life of your loan, the lower monthly payments could make your debt easier to manage.

That said, not everyone will qualify for student loan refinancing. You’ll need to pass a credit and income check to qualify for refinancing, or apply with a cosigner who can.

4. Explore student loan repayment assistance programs

While private student loans aren’t eligible for federal forgiveness programs, like Public Service Loan Forgiveness, they might qualify for private- or state-run loan repayment assistance programs (LRAPs). These programs typically offer thousands of dollars in loan assistance in exchange for working or living in a certain area.

Some employers also offer a student loan matching benefit, which could help you get rid of your debt faster. If you’re job searching, consider applying to a company that could help you pay off your student loans.

Already defaulted? 3 steps that could help

The steps above can help you avoid private student loan default, but here’s what you can do if it’s already happened.

1. Dispute the debt

Maybe debt collectors are ringing your phone off the hook, but something feels wrong. If you’re not convinced you owe this defaulted private student loan, it could be worth disputing the debt.

As long as you make your dispute within 30 days of hearing from a debt collector, that collector will be legally obligated to provide full verification of the loan’s originations.

If the collector can’t provide this documentation — or if you discover a mismatch with your own records — you could be able to prove the debt is invalid or you don’t owe as much as the collector claims.

2. Pay your loan back in full

Although full and immediate repayment is probably unrealistic for most borrowers, it is worth mentioning as a way to get out of default. Paying off your entire balance at once will stop the default. If you’ve saved up a large sum or get an unexpected windfall, consider throwing it at your debt to get out of default once and for all.

3. Speak with a student loan lawyer

Finally, consulting a student loan lawyer could be a helpful step. The lawyer could help you understand your options, and explain how your particular state treats defaulted private student loans. It could especially be smart to consult a lawyer if the debt collector has summoned you to court.

And if you don’t have the funds to pay for legal aid, you may be able to find low-cost or free assistance via the Amercian Bar Association’s pro-bono listings or the Legal Services Corporation.

Try your best to avoid defaulting on private student loans

In recent years, some borrowers have intentionally defaulted on their private student loans in protest over the student loan crisis burdening millions of Americans. But whatever you think of the financial situation we’re in, defaulting on your student loans could cause more harm than good.

As you can see, defaulting can damage your credit for years, and invite frequent calls and letters from debt collectors. You could even be brought to court, where a lender could get the right to withdraw money straight from your bank account.

Outside of these financial and legal repercussions, defaulting on student loans is sure to cause a ton of stress and anxiety. So if you’re struggling to pay your bills, try your best to speak with your lender before default occurs.

By keeping open communication, hopefully you and your lender can agree to a repayment plan that keeps your loan in good status without it being too much of a burden on your bank account.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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