When credit cards are used irresponsibly they can lead to misery, debt and a blemished credit reputation. Many adults have fallen into the credit card trap and college students can be in a particularly vulnerable position if they are using credit for the first time. However, students that take the time to understand how credit cards can be used to their own advantage, can avoid the pitfalls. Instead they can use credit responsibly to establish a credit record, whilst benefiting from cash back perks.
One of the most important financial lessons that students should adhere to is living within ones means. If credit cards are used routinely to help make ends meet, then overspending can become a problem. Every time a credit card is used and not paid off in full by the statement date, then interest is added to the balance, ensuring that the original item purchased inevitably costs more than its ticket price.
Interest accrues interest so should be avoided at all costs. Student credit cards are thus only recommended for students with enough financial discipline to pay the balance in full each month.
Ironically the students that don’t need the additional borrowing that credit cards represent are the ones best placed to benefit from them. By making regular monthly purchases on credit cards a credit history can be established. To ensure the credit that is being established is good students should ensure that only 30 percent of the available credit is utilized, and that the full balance is always paid to avoid interest.
Paying late and exceeding the credit limit are two practices that should always be avoided. Not only do both of these mistakes have a negative affect on ones credit rating, they carry a financial price. Charges are added for late payments, which in turn are subject to interest. Students who exceed their credit limit or make late payments may find that the card provider increases the interest rate to a penalty one in the region of 30 percent, which is then applied for six months before being reviewed.
Using credit cards for cash advances is a familiar trap which can be a costly mistake. Many credit card holders simply fail to understand that interest is charged from the moment a cash advance is obtained. Additionally a fee in the region of 3% is charged each time a cash advance is drawn. Running short of cash and relying on a credit card as a cash point card is folly. Not only is interest charged, but a higher rate is levied than that for purchases.
Cash back cards can be dangerous for cardholders who are enticed into extra spending by chasing a reward. It should always be remembered that cash back and reward points are nullified if interest is charged, thus students should only spend what they can afford to repay and not be distracted by rewards. Used astutely cash back rewards are worth having and there are several student credit cards that offer a reward for making payments on time, thus instilling good credit card practice.
To ensure that the potential credit card trap is avoided students should establish an automated payment to cover the monthly balance. This ensures there is no chance of paying late and thus incurring charges or interest. If the student is not certain that they can avoid the easy temptations that credit cards can lead to then they are best avoided completely.