STUDENT LIFE / JUL. 03, 2014
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Skip The Credit Card If You're A Student

If you’re a college student currently, or going to be a college student in the near future perhaps the wisest piece of advice anyone could give you would be to avoid getting a credit card at all costs.

While it is talked about generically from time to time, the numbers are absolutely staggering. When college students finish the first 4 years of their education – they will undoubtedly leave with some debt. Usually that debt will consist of student loans that are both subsidized, and unsubsidized. The real risk though isn’t in student loan debt.

For students, the real risk is credit card debt, which can lead to long term credit problems, a greater overall amount of debt, and the ability to rack of mountains of debt instantaneously. For students going away to college, or even students just starting out having the security of a credit card can be immensely helpful. Especially if the student is responsible for their own finances.

That risk though can often outweigh the positive benefits. Here are some facts, and tips to keep in mind if you’re a college student, or young adult – considering getting a credit card.

Understand This

Student loan debt, and credit card debt are two different things. Student loan debt represents the $29,400 in debt that 71% of graduating college seniors graduated with last year.

The numbers for credit card use amongst college students is frightening if you’re an adult who has ever carried a credit card before.

Understand the Numbers

According to College Parents of America, 84% of undergrads have at least one credit card. Their findings go on to show that the average student will graduate with $4,100 in credit card debt.

The most startling number might be the one that points to students on average – carrying 4.6 credit cards. In fact, 50% of college students carry 4 or more credit cards in their name. In some cases, their research went on to show that 19% of college students will graduate with more than $7,000 in credit card debt.

What Could They Be Charging?

Students aren’t using credit cards to charge their way through a good time, either. The results show that students are charging to survive college. 90% of students report using a credit card to pay for direct educational expenses. School supplies, text books, and food are just a few of the things that at least 75% of college students charge out of necessity.

30% of students even reported paying tuition with credit cards.

Understand These Last Figures

40% of college students charged things knowing they didn’t have the money to pay the debt off. That translates to 40% of college students – charging school related expenses – that if it were not for the card itself – would not be obtainable by the student.

60% of students said that they were surprised at how high their balance was at the end of their undergraduate study, and surprised at how it happened.

Lastly, 84% of college students believe they need more education on financial management.

What It All Means

Whether you’re a student now, or going to be a student in the near future – take a hard look at credit cards before you sign any application. Many credit card companies offer student cards that have significantly higher interest rates than traditional credit cards.

  • If you can, sign up for a traditional card – or even a low interest rewards card – that can benefit you beyond just serving as access to large amounts of money.

Talk to you your parents, teachers, guidance counselors, older friends, or just anyone that has some experience with credit cards. Everyone has their own approach to handling credit cards having some knowledge - rather than going in blind– will serve you greatly.

  • If you can sign up for a joint account with your parents that will allow you to have some initial accountability – and an extra set of eyes on the account to watch for any red flags that might cause you long term financial problem – take advantage and do it.

Charging your college expenses isn’t the worst thing to charge. There are obviously worse things to charge when it comes down to it. However, it would be wise to ensure that the charges you make are not only reasonable, but responsible.

  • If you need a tool to stay on top of college related expenses that you’re charging – create a spreadsheet to document what charges you have incurred, and make sure you pay them off as quickly as possible. The interest you incurred on credit cards, especially student credit cards, is far higher than loans.

Having multiple credit cards is unnecessary. A good rule of thumb is to have an everyday expense card – that has a low enough balance that you could pay it off monthly, and never carry a balance. In addition to your everyday expense card carry an emergency card that has a higher limit, but is exclusively for situations that you truly did not expect.

  • Store cards are giant pitfalls for college students. Interest rates that are unreasonably high and limited usability. They are the worst investment any consumer, much less student, could make. Stick with the major names – and limit yourself, as well as your balance.

Your balance may be $0, but the credit is still out against you. For example, if your limit is $3,000 a bank - when trying to qualify for a student loan, car loan, or even a mortgage later after college – will evaluate all the limits that are out against you. These are the things that consumers need to watch out for

The bottom line is that if you’re a college student, it’s important to watch and understand the potential pitfalls that exist for credit card users. The most important piece of advice is to understand what you’re signing, what you’re charging, and what the terms of the charge are.

Of course, if you can avoid charging – that would be the best scenario.

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