What College Students Ought To Know About Credit Cards
Credit cards can be very useful, but they can also be dangerous for college students who neglect to pay the bill.
Before you sign up for a credit card, make sure that you actually want a credit card and that you are ready to handle all of the added responsibility that comes along with having one.
Don’t feel pressured by all the credit card companies on campus that will try to convince you to sign up for their credit card through offering various incentives – free t-shirts, gift cards, etc.
Before signing up, be sure you’ve carefully considered all of your other options and are comfortable that this card has the features that you’re looking for. You might also want to run the idea past your parents to see what they think.
There are 3 major types of cards that get called “credit cards”:
Credit Cards – These types of cards allow you to make purchases and you have the option to pay the entire amount off at the end of the month or a portion of the amount, with the rest to be paid later with interest.
Charge Cards – These types of cards are similar to credit cards, except you must pay off your balance at the end of the month. You are not allowed to pay some now and some later as you can with the credit card.
Debit Cards – These types of cards are linked to your bank account and allow you to make purchases without using cash; instead the cash is deducted straight from your bank account when you swipe the card. You will never be able to spend more than what you have in your bank account.
Credit Card Features
If you decide to sign up for a credit card, it’s important that you are aware of certain credit card features and terminology:
Annual Percentage Rate (APR) – The interest rate you’ll be charged if you don’t pay your balance in full at the end of each month. You will want your APR to be as low as possible. Sometimes credit card companies will offer a low APR when you first sign up for the credit card, but then raise it after a certain period of time. Make sure you understand the terms of the credit card before you sign up.
Annual Fee – Some credit card companies will charge a yearly membership fee, however college students can usually get a credit card that does not have an annual fee.
Grace Period - This is the number of days you have after the end of one payment period to pay your balance in full before you get charged interest on the new purchases you made during that month. The standard is a 25-day grace period. You should avoid credit cards that have a grace period less than that.
Late Payment Fee – This is the amount you’ll get charged in addition to interest if you are late paying the minimum balance on your bill. These fees are usually around $20-$25.
Incentives – Most credit cards come with “incentives.” Some examples include frequent flyer miles for each dollar you spend, free phone minutes, or gift cards. Some credit cards will offer additional incentives initially just for signing up, such as 30,000 frequent flyer miles, etc.
Things To Avoid…
Try to pay your bill off every month to avoid running a balance and getting charged interest. Students sometimes struggle in this area because swiping your card for a $5.00 purchase will feel exactly the same as swiping it for $500.00. However, a $5.00 bill in the mail will feel a lot better than a $500.00 bill in the mail! Try your best to keep a handle on your credit card expenses and always spend within your means.
Shocking Student Credit Card Statistics!
- 91% of undergraduate students have at least one credit card
- 50% of college students have four or more credit cards
- The average undergraduate student has $3,173 in credit card debt
- The average college senior will graduate with $4,100 in credit card debt
- 45% of teens know how to use a credit card, while only 26% understand how credit card interest and fees actually work
- 25% of college students have paid credit card late fee at least once
- 84% of college students admit to needing more education in financial management
- 7.2% of college students drop out of college due to debt or other financial pressures
Bottom line, don’t become one of the statistics. When you hear the horror stories of your friends getting deep into credit card debt, believe that it can happen to you if you’re not careful!
Be responsible and pay off the balance on your credit card each month to avoid getting caught in the credit card debt trap.
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