As every college student soon becomes aware, the early days of every quarter or semester is filled with hope and excitement… and multiple credit card offers. In fact, no matter where you are, you can’t swing a dead cat without hitting a credit card offer. The thing is, credit cards can be a really useful source of emergency funds for most college students. Be it a professor who decides at the last minute to require an expensive book for his course, or a sudden car repair, a credit card can really help you over the hump. Unfortunately, the problem is that a credit card can also become a financial trap if you don’t use it properly.
College Students and Debt
In a 2011 survey conducted by the Canadian University Survey Consortium (CUSC), one in five undergraduate students indicated that they carried a credit card balance. The average balance was $3,700, but some were as high as $10,000, and the annual percentage rate (APR) was often between 10 and 24 percent. This credit card debt often occurs in tandem with student loan debt, leaving students thousands of dollars in debt by the time they graduate.
To make matters worse, young Canadians are spending more on non-essentials like luxury goods, dining, and travel, and often using credit to do it. Additionally, a large percentage of cardholders aged 18 to 34 don’t pay their balance in full each month, and Canadians aged 25 and younger have the highest percentage of credit scores below 520. Based on these troubling statistics, it’s important to learn responsible credit spending early – if possible, before you get your first credit card.
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Tips for Smart Credit Use
1. Become a credit expert. You don’t have to go to accounting school, but Lexington Law credit repair service recommends that you thoroughly familiarize yourself with your credit report and the methods required to maintain, improve, and even fix your credit score. Staying knowledgeable about your credit allows you to catch small problems before they become unmanageable; it also helps you understand when you can handle something yourself, and when you might need professional help.
2. Treat credit cards as a loan, not income. One of the biggest mistakes that they view credit cards as an extension of their budget. When it comes to their expenses, that $3,000 credit limit is seen as available funds instead of what it actually is: a loan that must be paid back with interest. When you view credit as money in the bank, instead of a loan, you are more likely to overspend, and more likely to end up with a lot of debt and interest that you have to pay back. When you do your budgeting, forget the credit cards exist. If your budget won’t work without them, then that’s a sign that you either need to adjust your budget, find another source of income, or ask for help.
3. Read all the fine print. Credit card companies will always put their best foot forward when it comes to getting you to sign on the dotted line. You’ll hear all about the cash back, travel rewards, and other perks, while they hide much of the bad stuff in the fine print. For example, that card that gives you 2% cash back on all purchases might have a $100 annual fee that’s charged to the card, and on which you will need to pay interest if you don’t pay it back in full at the end of the month. Before you sign for that card, make sure you understand exactly how it works, including any penalties and fees and interest rates for different types of transactions.
4. Avoid buying things you couldn’t afford without the card. You are going to have emergencies — times when you will have no choice to use your card because you don’t have the cash available. However, those times should be few and far between. If you use your card regularly, you need to be sure that whatever you buy is something that you would have been able to purchase without the card within a month. For example, if you want the latest iPhone, would you be able to pay the full price of the phone within 30 days? If not, then don’t purchase it with your card, because you won’t be able to pay off that balance within 30 days either; and carrying a balance means more interest and more debt.
5. Never use the card for cash advances. Cash advances are the worst, there’s really no other way to put it. First, the APR and fees for a cash advance are much higher than with a purchase. Second, the interest on a cash advance is due immediately, versus the 30-day grace period some cards can give you when you make a purchase. Third, purchases made with the cash advance are usually not protected the way purchases are. Fourth, it’s easy to lose track of cash purchases. If you need cash, and a credit card is your only option, then that’s a sign that there are serious problems with your budget.
6. Avoid having more than one card. Less is more when it comes to credit cards. In fact, if you use credit wisely, there’s really no reason for you to have more than one card while in college. Having one card means you only have to keep track of one balance, one credit limit, and one payment. More cards mean more debt, and more debt could mean a lower credit score even if you pay your bills on time each month. If you find yourself maxing out one card, and unable to clear the balance, that is a sign that you are having trouble managing your credit. Getting another card isn’t going to fix that problem, and can actually make it worse.
7. Remember that credit cards aren’t your only option. Thanks to the popularity of debit cards you can now perform many of the same functions as you would with a credit card, but without the debt. If you can, consider setting aside a little money each month in a separate account and using that as your emergency stash instead of a credit card.