Credit cards are a quick and easy way to pay for the things we need, but they can also cause a lot of trouble if not used responsibly. To help young adults learn the value of credit cards, federal law requires that persons under the age of 21 must have an adult cosigner, usually a parent, who is responsible for the balance on the credit card if it goes unpaid. Here are some tips for college life and student success, how to choose a card, how to use a card without getting into credit card debt and some advantages of using a credit card.
Advice for students choosing a credit card
“While you may be eager to shed the ‘student’ moniker, using a still-active school email address enables you to take advantage of the better terms banks offer college students, in light of their above-average earning potential,” wrote Odysseas Papadimitriou in the May 15, 2013 article “The Best Credit Cards for College and High School Graduates in 2013” in US News.
Papadimitriou advises choosing a card that:
- offers rewards, such as 1% or 2% back on all purchases
- has no annual fee
- offers cash back when you pay on time
- has a low interest rate, such as 10.99%
- offers a 0% interest rate for the first year
- requires a minimum security deposit (of say $300 or $500), which prevents you from spending more than you can afford.
How to use a credit card responsibly
Worried about how you’ll manage your credit cards? Try out some of these tips.
- Use your credit card for emergencies, or when carrying cash could be dangerous (such as at a concert) or inconvenient. If you get in the habit of using a credit card for most purchases, you may not notice how fast you are accumulating debt.
- When the bill comes in, don’t pay just the minimum payment. Try to add a bit more. Paying the minimum means your principle will reduce more slowly, and the interest will rise. It will take you much longer to pay off the balance.
- If possible, pay off your credit card each month. This way you will not accrue high interest payments.
- Too much credit card debt can affect your credit rating. The credit rating agencies use your debt-to-income ratio (how much debt you’ve accumulated compared to how much income you make) to calculate your credit rating. A high ratio means a low credit score.
If you feel you’re not yet ready to use a credit card responsibly, alternatives include a pre-paid debit card, checks… and there’s always cash!
Watch the high interest rates
“Credit cards are actually high-interest loans in disguise, ” explained a contributor to Bigfuture by the College Board in “How to use credit cards wisely.” “The companies loan you money, and they get it all back and more by charging interest — a charge for borrowing the money — and other fees.”
The Credit Card Accountability Responsibility and Disclosure Act of 2009 assured that credit card rules and transactions are more transparent so everyone can understand the policies and so hidden fees are no longer hidden.
Advantages of using a credit card
Although I might have instilled some fear in using credit cards while in college, if used responsibly by students aware of how they work, they can be both useful and convenient. Using a credit card early in your adult life builds a credit score that will be valuable when later on.
“Don’t avoid using your credit card altogether. Consistently using and paying down a credit card is actually one of the best and fastest ways to build a good credit history. You’ll want that history behind you when you go to take out a car loan or a mortgage in the future,” advised to Rob Berger in “5 credit card tips for new grads,” on June 19, 2013 in Business Insider.
In addition, paying off a credit card balance or making regular payments builds good habits and financial responsibility.
Are you afraid you’ll get into debt with a credit card? Tell us in the comments.