Did you know that 69% of college students in 2018 accumulated an average debt balance of $29,800, according to this study by The Institute for College Access and Success?
And that is only the debt accumulated from their studies, it doesn’t take into account other debt, such as the cost of living. The cost of living during college can also be expensive and some students turn to credit cards or loans to help them.
But with so much student loan debt, the question you might be asking is should college students have credit cards? We have the answers for you, so whether you’re a concerned student or a worried parent check out our advice on students and credit cards.
Should I Get a Credit Card in College?
Many college students debate whether or not to get a credit card before or during their studies. College students and credit cards can be a great combination when handled with care.
According to Sallie Mae’s Majoring in Money report, the majority of young adults have credit cards. The report found that 57% of college students and 83% of college graduates have credit cards.
Clearly, many students believe that it’s a good idea to have a credit card during college. But what are the benefits of having a credit card and should a college student get a credit card?
Advantages of Credit Cards for Students
One advantage is that owning a credit card can help give you and improve your credit score. Credit scores are necessary for your future, for example, when you leave university and want to rent a place you will need a good credit history. You also might need a good credit history if you are applying for jobs or loans in the future (such as mortgages).
Another advantage is that there are many different types of credit cards, all of which offer a variety of credit options and flexibility, so you definitely will be able to find one that suits you and your needs. If you want to be cautious and not borrow too much, then you can choose a credit card with a limited allowance.
Having a credit card can help you learn about money management. Being able to financially plan is a highly desirable skill that you can obtain from having a credit card. The first act of finding a credit card will mean that you need to compare interest rates, annual fees, and reward potentials – which will initially teach you about financial offers.
Disadvantages of Credit Cards for Students
All arguments have two sides, and if you are asking “should I get a student credit card?” then you need to know the disadvantages of credit cards too.
An obvious disadvantage is college student credit card debt. If you are recklessly spending money because you have a credit card, it will come back to haunt you. Getting yourself into more debt can cause many problems, however, it can also serve as a valuable lesson about how to handle money.
Another disadvantage is thinking that you have additional money. With credit cards, you’re essentially loaning money, but a lot of students forget this and treat it as though it is free money. Credit cards at college should be used in emergencies or to improve your credit score, not to buy brand new electronics that you don’t need or to pay for massive parties.
Credit Card Mistakes to Avoid
A lot of mistakes students make with their credit cards can be easily avoided. If you’ve never had a credit card before and haven’t done much research into them, then you might not understand how to use them.
These are the common mistakes students make that you need to avoid:
1. Not Understanding Credit Cards and Scores
Credit scores will be very important when you leave college. Your credit score will range from 300 to 850, and this number signifies to lenders how reliable you are and whether you can repay your debts.
To avoid this mistake, make sure that before you get a credit card, you research what it means to have a credit card and how to use it responsibly so it can positively impact your future.
2. Missing Payments
When you are juggling college work and midterms it can be easy to miss a repayment. But this must be avoided at all costs because missing a payment can result in paying a lot more money back.
To avoid missing your credit card repayments, make sure you set up alerts about the payments that need to be made and when. You can easily put a reminder on your phone about your bills a few days before the payment needs to be made, so you’re organized.
3. Not Setting a Budget
Many college students fail to set a budget of how much they can realistically spend and save. You need to make sure you are tracking your finances and are aware of your outgoings and incomings.
To avoid not setting a budget, you’ll need to work out everything that goes out and comes into your bank account. Then you need to set yourself a budget each month of how much you want to spend and save.
Remember, it’s best to live within your means (i.e. spend less during the month) and saves more money. Give yourself saving goals as this will help you stick to your budget.
4. Not Understanding How APR Works
Another common mistake that college students make is not understanding how APR works. APR is the interest that your credit card company charges you. The APR rate can range from low to high, so it is important that students find a credit card with a low APR.
To avoid this make sure you talk to the credit card company and understand their terms and conditions in full. Or discuss it with a financial adviser and ask them to help you find the right credit card and APR for you.
Should College Students Have Credit Cards?
So, should college students have credit cards? Yes, they should. Credit cards can help you improve your credit score, which can help you in the future after college, and teach you about how to handle money.
However, students must also be mindful of common mistakes such as missing payments, giving themselves more debt, and not understanding how credit cards work.
And, if the student is younger than 21 years old, they will need to have an adult as a cosigner or show they have enough income to pay back the credit card debt, as required by the CARD act of 2009.
Credit cards when used responsibly by students can have a great impact on their future and help them develop a better understanding of money. So if you are thinking about getting a credit card, then check out the best credit cards that are available to you right now.