Credit cards are an attractive form of payment, especially to cash-strapped college students. Credit cards offer the means to pay for necessary or wanted items with payment delayed to a later date. However, credit cards can either be hit or miss for college students, and it really all depends on whether the cards are used responsibly or not. Credit cards for college students can be a great financial tool when used correctly, but they can also have serious disadvantages if used irresponsibly.
College students are at a crossroads between childhood and adulthood, and the use of credit cards can really determine financial stability in the years to come. Sound credit card decisions can lead to solid creditworthiness while reckless use can spell years of debt.
How can college students use credit cards irresponsibly?
Credit card companies love college students because they are usually the proverbial babes in the woods when it comes to financial matters. College students don’t have the years of experience to connect the easy, immediate credit card purchase with a higher repayment down the road. Many don’t have the financial understanding of the ramifications of interest and the fees that go along with all credit cards.
College students have the stereotype of using credit cards impulsively and for unnecessary items; so much that this typecast has found its way into television shows and commercials where college students use a credit card for shopping sprees, pizza for the dorm and all-night parties until being busted by mom and dad.
The reality is that many college students do use credit cards for unnecessary items such as clothes, electronics, and take-out food.
The ease with which credit cards can be used gets many college students into debt. The federal government believed that credit cards for students was a big enough issue to add it to the reforms passed by the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Under the Act, credit card companies must give valid reasons for having credit card sign-up booths on campuses and disclose their agreements with universities and colleges.
What are the disadvantages to using credit cards irresponsibly?
Too few college students have an understanding of the impact credit cards have on their credit scores and future financial freedoms. It is too easy to swipe a card and worry about a high-interest repayment later. However, that debt created with credit cards will find its way onto credit reports that are used by lenders and even employers to determine a person’s creditworthiness and stability.
Negative factors such as late or missed payments and credit card accounts that have gone to a collection agency will stay on a college student’s credit report for seven years.
That could keep college students from getting a loan for an automobile, mortgage, or even a job for many years. Add compounding credit card debt to student loans, and many college students will spend their 20s paying for old debt rather than focusing on building financial stability.
Interest rate calculators such as the one on SmartMoney.com show the length of time it takes to pay off credit card debt and the interest that will be paid. Their example of $5,000 in debt with a 15% interest rate and a minimum monthly payment of $106 will take six years to pay off. In that time, a whopping $2,633 in interest will be added to the original debt. Credit card debt will affect college students for years, making financial freedom hard to achieve for many.
How can college students use credit cards responsibly?
While many college students have little understanding of credit, most are in an excellent position to learn financial management along with American Literature and World History. Understanding how credit works is not rocket science, and once most college students understand and adhere to the basics, credit cards can be a great tool for helping to build a solid credit history that will lead to financial freedom rather than debt.
Some tips for college student credit cards include using them only for emergencies or absolute necessities. A broken-down car that is used to get back and forth to class is an emergency; craving Chinese food during a study session is not. Buying school books is an absolute necessity, but taking out a subscription to Cosmopolitan is not an immediate need. Lastly, pay off credit card debt as soon as possible to avoid compounding interest and fees.
What are the advantages to using credit cards responsibly?
College students can get a really good start on building their credit if they use credit cards responsibly. Good payment histories and a low balance carried on a card will put positive information on a college student’s budding credit report. That positive information will put college students in a position to get the best loans for a car or a home; it can even be a deciding factor for getting that coveted good job right out of college.
Every college student who wants to start building a great credit history should research credit cards with the FREE credit card chaser!
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