Today I have a guest post from Kevin Watts who writes at Graduating from Debt. Kevin graduated from college with $12,000 in student loans and has a strong desire to get rid of his debt. Let’s see what he to say about students getting a credit card for college.
So, you are starting a new chapter in your life, one with more independence, and more financial independence. Having a credit card is a positive step towards financial independence; it is an excellent way to build credit. A good credit history takes a long time to build, so starting when you are in college is opportunistic.
Because students are so focused on the present, and think ideally about the future, they are appealing clientele to credit card companies. Current economic times most often require students to have a co-signer in order to get approved. This is good for both students and credit card companies. It reduces the risk to the lender and forces the student to take the whole thing a bit more seriously.
The problem with a credit card is that it does not feel like you are spending money when you use it. You hand over the card and sign the bill or punch in the code, but the amount you have charged does not completely register until you get the (gulp) bill. For this very reason, make sure that you do not get too high of a limit. It is really great that credit card companies cannot keep automatically raising your limit the way they used to. Do not take on more than you can handle. The idea is to have the card but not really use it, so a $1,000 limit is most often enough.
Never carry a balance on your credit card. It is the equivalent to throwing money away. Do not ever pay just the minimum balance unless completely necessary. Interest is dangerous and painful. Put your credit card in a drawer and stop using it altogether until the balance is paid off, and if you have difficulty restraining yourself from racking it up, then keep it in the drawer.
Some things you need a credit card for: renting a car, booking an airline flight, or paying for parking. It is good to have one, but it is important that you control it and not let it control you. It is also good to have such emergency funds available to you, as a safety net, so you do not have to worry as much if (and when) unexpected things come up. Having an overdraft on your checking account is an alternative safety net to have. These often have better interest rates than credit cards too. Learning to balance your finances is something that is learned through trial and error, so having safeguards in place to protect you while you learn is helpful.
Identity theft is a concern for university students. Dorms and the use of unsecured computers can be places where your credentials and login information can be accessed. Be careful to always logout properly and ensure that none of those “remember me” boxes are ever checked. Also, do not leave personal things lying around where the information can be collected.
Remember, credit is money you have access to, but it is not money you necessarily have. You are going to have student loans to pay off soon enough; so do not throw credit card debt into the mix and make life more impossible for yourself. Constantly categorizing purchases into needs and wants will help you to decide if you need to charge something or not.
This post was included at:
Lifestyle Carnival at On Better Terms
Carnival of Retirement at Save and Conquer
Financial Carnival for Young Adults at Stepping It Down
Carnival of Financial Planning at The College Investor
Aspiring Blogger Financial Carnival at Aspiring Blogger
Carnival of Financial Camaraderie at Messy Money
Carn of MoneyPros at FITnancials