Too many college students today are already burdened by high credit card debt.
How does this happen? The usual culprit is a mixture of high pressure marketing by credit card companies on college campuses and a lack of information on the part of college students. This mixture results in a very high percentage of college students not only owning a credit card, but also using it a lot. Credit cards for college students are fine if you understand them. The problem is that most young folks can’t answer: how do credit cards work?
According to a recent survey, almost 84% of college students have at least one credit card and half of most college students have four more credit cards! Couple this with a lack of understanding about how quickly credit card debt adds up and it spells trouble.
How can college students learn how to properly use credit cards? This simple guide will explain what you need to know before you go out and get a credit card.
What are the pros/cons of credit cards for college students?
Credit cards can be both extremely helpful and extremely harmful. If they are used properly the average college student can benefit from many aspects of a credit card. The first pro to using a credit card is the ability to have a line of credit for emergencies. So if something happens and you need a chunk of cash to pay for it, then a credit card can save you. This is only true if the card is not already filled with debt.
Another good attribute of credit cards is that you can pay off a purchase over time. Again, this is only true if you pay off the purchase. Credit cards offer security for shopping, both online and in person. Your information will be protected in most cases and most credit card companies have fraud liability protection in case of theft. Proper use of a credit card can also help you to build a decent credit score for the future. You can also benefit from rewards and bonuses.
Credit cards have lots of cons as well. The most troubling one in a high interest rate on carry over balances. So if you use your card and then pay off your balance that month you are fine, but if you don’t fully pay it off and carry the balance into the next month, then you are charged a very high rate of interest. This interest really builds up and leads to the second con of credit cards-debt. Nothing gets you into debt faster than a credit card. It is incredibly easy to overspend on a card because you don’t have to look at each purchase. Then you’re stuck trying to get out of debt fast.
Add in interest and most college students are dumbfounded by how fast their balance becomes ridiculously large. Credit card debt can also lead to a poor credit rating, which can haunt you forever. Add in penalties and fees and it is no wonder that most college students graduate in credit card debt. Debt that is very hard to get out of. So how do you utilize the benefits of a credit card without suffering the negative effects of them? The answer is knowledge and will power.
Knowledge About Credit Cards
We want you to master student credit cards.
One of the major concerns over college students and credit cards comes from the credit card company’s extreme use of campus marketing. Students are bombarded by credit card offers, promotions, rewards and pressure to sign up. Companies often use affinity cards and high pressure tactics to convince college students to get a card. They very often do not explain the negative aspects of the card, but instead let students find out these negative features on their own. As much as the new Credit Card Act has helped, the reality is that if you’re over 21 or can prove you have an income coming in, you will still get a credit card.
So how to you protect yourself from these problems?
The first and most important rule is to gain knowledge about credit cards. A credit card is a financial tool and nothing else. It is not a license to spend nor is it free ride. The most important thing to remember is that you are borrowing money when you use a credit card. You will have to pay that money back and when you do it will cost you more than you borrow if you don’t pay it back on time.
Credit cards should be used for specific purposes in a controlled manner. For example, you should only use your card two or three times a month to pay your bills or car payments, then you should have a schedule in place to pay it off before the end of the month. Try to never let a balance carry over to the next month.
The next most important rule of using a credit card is to force yourself not to buy things that you don’t know that you have the money for. This will keep you out of debt. Think of a credit card as a credit building tool and not as a spending tool. Remember that if you get a credit card for the rewards program, you will lose any of the benefits of the rewards if you do not pay off the card by the end of each month.
How-to pick the best credit card for students…
Having a credit card is important for a college student both for emergencies and for building a credit history for your future. It is important however that you choose the right college student card. Avoid the credit card promoters that often show up at college campuses. These cards are often loaded with short term promotional rewards and benefits that don’t last. They also usually have high interest rates and fees. They try to use pressure and the promise of rewards to get you to quickly sign up for their cards.
Never make a quick decision on signing up for a credit card. If you want a card go down to your bank and discuss the right type of card for you. Choose one with a low credit rating and be sure that you fully understand how fees and penalties work. Ask a bank representative to explain it to you if you are not sure.
Before you get any credit card be sure that you understand how variable interest rates work, how much time you will have to pay back your card’s balance and exactly how long interest free periods and promotional offers last. Understand what your responsibilities will be. Doing so will keep you out of credit card trouble.
This was a guest post from Timoty.