Advantages and Pitfalls of Student Credit Cards
Surviving a Credit Card on Campus
A credit card is pretty much a necessity these days. After all, it seems few people pay with actual cash anymore and having some cash in plastic is comforting. Even so, credit cards do not come without risks.
You can think of a credit card as a loan. You make purchases for goods and services on the promise that you will pay in cash for them later, with interest attached—the cost of borrowing the money from the bank.
Advantages of Credit Cards
Credit cards carry with them many advantages that include helping you establish credit. Here are just a few of the perks.
Security
There’s nothing worse than laying down cash for a purchase only to get ripped off and have no way to get your money back. With a credit card, your purchases are logged and documented with the credit card company. Each purchase is detailed on your monthly statement. Should a problem arise, all you need to do is call the credit card company and alert them to the issue. Most credit cared companies are also very prompt to alert you to any suspicious activity related to your credit card account.
Emergency Fund
You can only save so much money. Even if you save and really plan ahead, you can still find yourself short one month because of unexpected expenses. Emergency car repairs, hefty utility bills, emergency travel, these are just a few of the unexpected costs that could rob you of your precious cash cushion.
In an emergency, a credit card may be a worthy and justifiable financial tool to have.
When Credit Cards are a Necessity
While not all credit cards are accepted everywhere, the majority of them are, even in many foreign countries. If you need to reserve a hotel, you’ll need a credit card. If you want to shop online, you’ll need a credit card; reserve a rental car—you’ll need a credit card. Credit cards are sometimes simply necessary.
Establish a Solid Credit History
A credit card can actually help financially responsible students establish and build credit. On campus your immediate concerns will be grades, social life and finances. But with a credit card you have the very real opportunity to build a financial history, slowly. You don’t have to go crazy with it—just a few purchases here and there on credit can keep your credit report fresh. Make the payments on time and you’ll be fine.
Credit Card Pitfalls
Even though credit cards carry with them many positives, they also have their share of negatives, especially for young people with not very much credit. Most of these pitfalls, however, can be dealt with by practicing responsible credit card use.
Finance Charges
Each month, you are sent your credit card statement, which details your purchases and shows how much you owe. You can pay the minimum amount due—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, it will accrue interest. This is called a finance charge and, depending on what card you have, finance charges could be up to 20% of the balance.
Late Fees
If you are irresponsible with monthly bill payments you’ll find out quickly how sharp the punishment is when you’re late on credit card payments. Late fees may be slapped onto your account the day after your due date and may be anywhere between $35 and $50. Late fees happen to the best of people, but for cash-starved college students a couple of late fees add up to a small fortune.
Temptation
Having a credit card is like having cash with you at all times. They can be a serious temptation to spend impulsively. This is precisely why many college students end up in debt trouble before they even leave campus.
Best advice: only use your credit card in an emergency, otherwise forget you even have it.
Your Guide To Responsible Credit Card Use
Now that you know the benefits and the disadvantages of having a credit card, let’s discuss some ways in which you can become a responsible credit card user.
Avoid Impulse Buying
One way to be a responsible credit card user is to avoid using your cards just because. Impulse shopping is the first and foremost way to rack up unneeded debt.
Use It For An Emergency
Saving your credit card for an emergency situation is one of the best things you can do. This way, you will always have a little bit of money on hand for those unexpected situations.
Don’t Spend More Than You Have
A good rule of thumb is to never spend more than you actually have in the bank. That is, don’t live outside your means. If you can’t afford an item without your credit card, then don’t buy it—unless it’s an emergency, of course.
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 each and every month. Getting into the habit of this will make bill paying easier for you in the future and help you build credit while in college—two very important things.