- Personal Finance
How to Use a Credit Card in College
It is likely that you have heard the dangers of credit cards. Additionally, you have probably discovered some of the many benefits of a credit card as well. Therefore the question is asked, "As a college student, should I get a credit card?"
Of course, if you decide to get a credit card, you will then have to determine what kind to get and how to manage it intelligently.
A credit card is not for everyone. If you have a lack of self control, struggle with managing a budget, and tend to make impulse purchases, I would highly recommend that you avoid a credit card until you have a high paying job.
However, if you are cautious with your finances and know how to control your spending, a credit card is probably a good idea for you.
Benefits of a Credit Card in College
College is all about preparing yourself for the real world. There are three reasons that owning a credit card during college can help you better prepare for the future:
- You begin to build a credit score.
- You will have to know how to manage a budget and debt in the near future anyway - you may as well discover how to do that sooner than later.
- A credit card gives you potential to save and make a lot of money - as many cards provide points or cash back, meaning that you actually earn something when you spend.
All-in-all, a credit card is a huge benefit if it is used effectively and intelligently. If you can be smart, getting a credit card will give you a huge boost up in life.
25% of Americans have more credit card debt than savings.
46% of Americans would have credit card debt if they faced a surprise expense.
The average credit card interest rate is 29.4%
Dangers of Having a Credit Card in College
College is a time of collecting massive amounts of debt, in addition to a love for having fun (which can cost a lot as well). In college you are making little-to-no money while spending a large amount on student loans, housing, living expenses, and entertainment. Failing to keep your budget in line during this time in your life can end up hurting you significantly throughout the rest of your life.
Several of the primary dangers of getting a credit card include:
- Spending more money than you have and starting off life with a huge amount of debt.
- Paying high interest rates on borrowed money.
- Hurting your credit score.
- Paying annual credit card fees.
- Spending more than you would have otherwise.
Although a credit card presents a lot of opportunities, it can also lead to a lot of trouble. Credit card debt is difficult to pay off if you let yourself fall to far behind. In addition, the fees and interest rates can cause a $10 item to end up costing doubt that. Do not get a credit card if you cannot handle your budget.
Choosing a Credit Card in College
What to Look for in a Credit Card
What to Avoid in a Credit Card
$0 Annual Fee (Permanently)
Any Annual Fee
Low interest rate (close to 10%)
High interest rates (20%)
Cash Back OR Points
Avoid American Express
I have run into several people in college who only have an American Express credit card. This is because they offer high returns and rewards. However, they offer this because they charge businesses more to accept the card. Therefore, many businesses do not accept this card.
Save yourself the hassle and embarrassment of going somewhere and having your card not accepted. If you are only going to have one card, make it a visa or a master card.
What to Consider When Choosing a Credit Card
From the moment most of us turn 18, we are bombarded with credit card opportunities from a plethora of companies. In addition to Visas and Master Cards, we get invitation to purchase an American Eagle, Macy's, or other businesses charge cards.
With so many options, what card should you choose? Or should you just choose all of them?
The most valuable card will provide you with no annual fee, a low interest rate, and rewards. I would not select a credit card that did not offer all of the above.
In regards to store charge cards. Be very careful. Stores know that people purchase more on a card. In fact, when fast food restaurants first started accepting credit cards near the turn of the century, their average sale increased by about 5%.
When we pay cash for something, we are much more careful because we see it leaving our wallet. However, if I am simply giving the cashier a piece of plastic and he is giving it right back, it doesn't seem like as big of a deal. While I was only planning on purchasing one item, since I am paying with my card, I think "Sure! Just add the drink as well."
If there is a store that you shop at regularly, and the amount of savings that you receive for having a store card are significant, consider getting the card. But I would suggest that you do not receive more than one or two store cards. Additionally, if you get a store card, pay it off right away. Make the purchase on the card so that you receive the discount, and then pay off the card.
The reason stores give away charge cards with huge coupons is because many people forget to pay off the card and pay 25% interest on their purchases. You lose the discounts quickly if you send in your payment late.
You really only want to have one or two credit cards. Any more and you can start forgetting what has been paid, when it was paid, and you are stuck calling countless people if you lose your wallet.
Keep it simple. Only have a card or two.
Steps in Setting Up Your First Credit Card
- Choose a card with no annual fee, lower interest rates, and points or rewards.
- Set up automatic deposit so that the ENTIRE monthly bill is pulled out of your account on the due date (any money left on the card will acquire high interest).
- Keep track of how much you have and how much you spend.
- Never make a purchase that you can not pay for immediately.
- Save up an emergency fund before spending money on luxuries.
How to Use a Credit Card in College
Now that you have a credit card that offers you money or points back (my current card gives me 1%-5% back on every purchase), use it for just about everything. Many business professionals receive free flights regularly because they make work purchases on their credit card, receive points, and have their company pay them back. It's a great way to receive a bonus!
However, before making a purchase with a credit card, consider these things:
- Do I need to purchase this item or is it a luxury?
- Can I afford to make this purchase without my card? Do I have enough money in the bank right now to cover it (even after subtracting every other purchase I have made on my card)?
- Would I purchase this item if I had to pay cash for it right now? Will I regret this purchase later?
- Can I make this purchase after paying for my necessities and placing some money in savings?
NEVER purchase something with money you do not have. Your credit card should not be used to purchase items using next months paycheck. Only make purchases that you can immediately pay for in cash. This will eliminate the risk of you building up credit card debt.
Financial Success in College
College is a great time to enjoy life while preparing for the future academically, in relationships, and financially. With the cost of education so high it is easy to gain a false understanding of the value of money in college.
Start looking at purchases in terms of hours rather than dollars. For example, if you find a job where you make $10/hr. Before you buy that Abercrombie shirt for $50, ask yourself if it is really worth 5 hours of work.
You might say, please, I am going to make $100/hr after a get my degree. So you think. The economy is never a sure thing. Make purchases based on your present income, not your expected future income.
All-in-all, having a credit card in college is a great opportunity to prepare for life and start managing your finances efficiently. As said to Spiderman, "With great power, comes great responsibility". Enjoy the new power of the credit card that you have just received.