5 Best Ways to Avoid Credit Card Debt in College
Let’s be honest with each other here. Who doesn’t love a free t-shirt? I know I sure do! But, I’m not going to risk my financial future or years and years of interest payments for some cheap shirt that I could get at Goodwill for $1.
There is a staple that you will be able to find at every single college campus (and it’s not awesome macaroni and cheese in the cafeteria!) It’s booths hawking credit card offers targeted to appeal to students, but more often than not, the responsibility of having a credit card poses risks that most kids don’t think about before they dive in.
Here are a few simple ways to avoid digging yourself into a deep hole with credit card debt. You don’t want to be like my friend who is buried under a mountain of credit card debt and can’t enjoy going out to eat with us because she is so busy making massive payments toward her debt. What a bummer!
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Calculate your college budget and balance your spending with the College Budget Calculator from NextStudent.com!
1. Set a budget before you go
The very best thing you can do to avoid credit card debt in college happens before you even set foot on campus. Sit down with your mom and dad or whoever you can comfortably talk to about money matters and come up with a budget for school.
This includes who is expected to pay for what (maybe mom and dad will give you a little extra spending money if you keep your grades up if you’re lucky!) and how much income you expect to have each month. Then brainstorm all the things you expect to spend money on and set goals for each month for each category – food, clothes, books, savings for long-term goals, etc. That way, your parents or other family can keep you accountable throughout the year.
If your parents are paying for things like rent or utilities, talk to them about how they will transfer the money and when. I chose to get my money for those essentials right before they were due so I wasn’t tempted to spend them!
2. Remember that cash is king!
When you look at your budget, see how much you should be spending per week on things like groceries, food, going out, etc., and think about taking out that cash at the beginning of each week. When the cash is gone, you’re done spending for the week. It is proven that you will spend less money overall if you use cash instead of credit cards so this tactic works wonders to keep your budget in check.
Make sure to double check that you aren’t being charged ATM fees every time you take out money! And, always be careful with your cash, making sure to carry only what you need (plus a little extra like your grandma always taught you!) and keeping the rest in a safe place.
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3. Use money orders for big things
Some apartment complexes like to get their tenants to pay their rent via credit card. I guess they are worried about bounced checks from irresponsible college students. But, there is another option that is almost as easy as just swiping your card (and paying all the interest later…) For larger purchases, go to a local bank and/or post office and get yourself a money order. The fee is minimal compared to interest on a rent payment and your landlord would most likely prefer that over a check.
4. Get a prepaid card
When you are a new college student, out on our own for the first time, the thrill of being able to spend money on a credit card is hard to resist. That’s why a lot of parents and students like the option of a prepaid credit card, also called a secured credit card. While it won’t help build your credit history like a traditional card, it does wonders to teach you about money management and financial responsibility.
Either you or your parents make a deposit to open the credit card account and then you get your card to spend however you chose. Once your initial deposit is spent, you have the option of adding more funds, which keeps you accountable to a budget, making sure that you don’t spend too much of your money at one time.
As with all cards, it is essential that you check out the different types of card offers out there so you aren’t saddled with a bunch of extra fees for depositing money. But, even the minimal fees are better than still having to pay off your beers and meals out years later.
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5. If you do get a card, do your research and keep the limit low
If you are really interested in building your credit history, which is a noble pursuit, then don’t just do a grab at any card you happen to pass by on your way to class. Do some serious research about which credit card offers to best interest rates and lowest fees. Choose one that makes sense for you – try looking at your local bank or credit union first and ask a lot of questions.
Another good tip is to make sure the limit is low. You will still build credit history, but you won’t be tempted to rack up thousands of dollars on the card.
A few extra things to remember
· You can really jack up your credit score. Even if you apply for a card just because of the free shirt (water bottle, hat, insert cheap promotional item here) and never use it, that still shows up on your credit report and too many can hurt your score.
· You end up paying way more than an item is worth because of high interest rates. Would you throw down a $100 bill for a $20 dinner if you had the cash? I don’t think so.
· New credit card laws require credit card companies to set your minimum payment at a percentage of your bill owed so there’s no more skating by with a $10 minimum payment.
· Credit card debt will follow you. When you are in your 20s and trying to make important purchases like a house, or even starting a family, you don’t want a mountain of credit card debt to prevent you from living your life.
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