June graduates' strange new world

Credit trouble
Beware of offers made at the cash register by department stores or specialty retailers to open a store credit account. Many retailers offer 10% off your purchases if you open a store account on the spot, betting that they'll make up the difference and more on interest payments. Some clever grads open multiple accounts, thinking they're clever to save 10% on several purchases. But each application requires a credit check, and too many inquiries can ding your credit score, driving up the cost of future loans.

You don't need the retailer's in-house card, because most stores accept Visa or MasterCard, issued by major banks such as JPMorgan Chase, Bank of America or Wells Fargo .

If you have trouble with credit cards, don't take on any more debt or sign up for new cards. All you need is a major bank card and maybe a gasoline credit card. Cut up the rest. Each month, pay the balance due in full on every card, because the interest payments will eat you alive.

Learn the difference between "smart" and "dumb" debt. The first involves a long-term advantage, such as a student loan to complete your studies, a mortgage or even a car loan. But it's dumb to run up credit-card debt with a high interest rate for groceries, fancy dinners or entertainment. If you calculate the interest cost — the annual percentage rate on some cards is in excess of 20% — and add it to the price tag, the item often becomes prohibitively expensive. (See "Seven Credit Card Tips For College Grads.")

"Low payments on a 72-month car loan may seem affordable," Smith says. "But how many people drive a car for six years? Many people extend the payments to buy more car than they can afford — and it gets very expensive if you don't keep the car for the term of the loan."

10 financial tips for graduates Click on the links for a full description: First, pay yourself Learn the wonders of compounding Open an IRA Learn to make trade-offs Snap up free money Balance short- and long-term goals Invest for long-term growth Plan for unexpected expenses Pay off credit cards Buy needed insurance

If some money lands in your lap via a birthday gift, tax refund or inheritance, think about using it to reduce debt, especially if you've run up a balance on a high-interest credit card. If credit debt isn't taking a bite out of your monthly budget because you manage your expenses well, use the found money to open a Roth IRA. It's never too early to start saving and investing for retirement. (See "The Too Good To Be True Tax Break.")

Finally, start a savings account for emergencies. It's not enough to keep extra money kicking around your checking account with a pledge not to spend it. Set up a separate savings account and make regular, monthly contributions to it. This will give you a cushion for an unexpected expense and it will also introduce you to the wonders of compound interest.

Do the math. Small steps can build a hefty savings account over time. Even $25 per week adds up to $1,300 per year. That's $13,000 over ten years, plus interest. Think what saving $100 per week would total — or $200.

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