Advantages and Pitfalls of Student Credit Cards
Surviving a Credit Card on Campus
Credit cards are difficult for many people with years of real-world financial experience to handle properly, and using cards responsibly is particularly challenging for novices. It can be dangerously easy to spend at will when you can present a piece of plastic as payment, but there always comes an unpleasant day of reckoning when your credit limit is reached and your bill arrives.
Nevertheless, a credit card is now standard equipment for most college students. Payment with cash is less popular than it once was, and almost all merchants in college towns accept credit cards. Banks devise special cards for new students, introductory "training wheels" cards issued with low credit limits, which give learners a chance to practice prudent use of credit without risking financial disaster. Even so, credit cards do not come without potential hazards.
Rule #1 for Safe Spending
The first rule of card use, one you must always remember, is to think of your credit card as a loan rather than a supply of previously earned extra money already sitting in your personal exchequer. If you follow that simple advice, your chances of becoming financially overextended through credit card debt will diminish significantly. You make purchases for goods and services on the promise that you will pay in cash for them later, with interest (the cost of borrowing the money from the bank) added.
At some time in your life, you will need to prove your creditworthiness so you can secure a loan, for purposes like buying a car or a house, or perhaps setting up your own business. Helping you establish good credit is one of the many services credit cards can perform for you.
Credit Card Advantages
Secure Payments: There's nothing worse than paying cash for a purchase, then discovering the item sold was defective or not what you were told it was. In such a case, you have no recourse and must sustain the loss yourself.
But if you are unfairly treated in a credit card sale, you may enlist your card company to fight the battle with the merchant on your behalf. With a credit card, your purchases are logged and documented by the credit card company. Each purchase is detailed on your monthly statement.
Should a problem arise, you should call your credit card company immediately and alert them to the issue. If there are grounds for disputing the purchase, your company can take up the matter with the merchant's credit card company. Most card issuers are also very prompt in informing you of any suspected fraudulent activity related to your credit card account.
Emergency Fund: Your ability to keep money in a savings account during your college years will be limited. Even if you plan ahead, you can still find yourself short of cash due to unexpected expenses. Any event that does not fall under normal planning, like car repairs, hefty utility bills, or sudden emergency travel, could deplete your savings at an inopportune moment.
But if you have a credit card at the ready, on which you have kept sufficient credit available, you can leave your savings untouched and use your card to cover the new expenditure. In an emergency, a credit card can be a very helpful financial tool.
When You Must Use A Credit Card: Some payments, like hotel and rental car reservations, cannot be made in cash. A credit card will be required, so the merchant has a guarantee. And credit cards can make other types of purchases, like online shopping, much easier. Credit cards are sometimes necessary.
Establish a Solid Credit History: A credit card can help financially responsible students establish good credit. On campus your immediate concerns will be grades, social life, and finances. But a credit card also gives you the opportunity to build a financial history, slowly and carefully.
Caution dictates that you make a few purchases here and there on credit, in order to keep your credit report updates. And of course you must make all card payments on time, preferably in the full amount you owe each month, in order to avoid excess fees and interest and to remain well within your credit limit.
Credit Card Pitfalls
Even though credit cards carry with them many positives, they also have their share of negatives, especially for young people with limited credit experience. Practicing responsible credit card use, however, can eliminate most of these problems.
- Finance Charges: Each month, you will receive a credit card statement, which details your purchases and shows how much you owe. You can pay the minimum amount due, which is typically just the interest, or the balance, or some figure in between. However, when you go for more than one month without paying the full balance, what remains will accrue the extra expense of interest. This cost is totally avoidable if you pay in full each month.
- Late Fees: If you are careless about paying your monthly bills on time, you'll find out quickly what the penalties are for being late on credit card payments. Late fees may be added to your account the day after your due date, and while everyone incurs them at some point, they can really hurt college students on tight budgets.
- Temptation To Spend Impulsively: Having a credit card is like carrying a large amount of cash with you at all times: the ease of using it may cause you to run up exorbitant bills, if you're not disciplined. This is precisely why many college students end up deep in debt before they even leave campus. And it's why you should use your credit card only in an emergency situation, or for a few small purchases each month.
A Quick Guide To Responsible Credit Card Use
Now that you know the benefits and the dangers of using a credit card, let's discuss some ways in which you can become a responsible card user.
- Avoid Impulse Buying: One way to use your card responsibly is to save it only for necessities. If you don't yield to urges to shop for clothes you don't need, or buy your friends pizza every week, you run much less risk of incurring excessive debt.
- Use It Only For Emergencies: Saving your credit card for true emergencies is one of the smartest ways to use it. You will always have financial resources on hand for unplanned, unavoidable expenses.
- Don't Spend More Than You Have: A good rule of thumb is never to spend more money than you have in the bank. Don't live above your means, especially if you have a very slender budget. If you can't afford an item without using your credit card, then don't buy it.
- Pay On Time Every Time: Finally, there's no better way to become a responsible credit card user than to pay your bills on time every month. Getting into this habit will make it easier to manage your finances in the future, and it helps you build sound credit while you're in college. Both of those goals will be important to your future success.