Tips for Using Credit Cards Wisely for Student How To Save Your Money Using your Credit Card for Student Trips for Idea for Student
A smart card is an alternative to a credit card. It looks like a credit card, but contains a small computer chip with a built in, preset value. Each time you use the card, your purchase is subtracted from the balance, which makes it more difficult to get into trouble. Use a smart card as your first credit card to help you learn to use credit responsibly.
Another way to get accustomed to using credit and paying bills on a regular basis without the temptation to get into deep credit card debt is to start off with a secured credit card. These cards are guaranteed by money you deposit in a bank account, so you can never charge more than the money you have designated and set aside in this special account.
A prepaid debit card, which allows you to make purchases on the Internet without a credit card, is another alternative to a credit card. Purchases are subtracted from your balance. When you run out, you can reload the card and continue using it.
Your best credit card strategy is to have one card with a low interest rate and a low credit limit ($500), use it sparingly, and pay it off every month. This will serve your goals of building a healthy credit history and having funds available for emergencies without the temptation to indulge in uncontrolled spending.
Using your credit card to pay for things you know you can afford is the smart way to use credit. It’s convenient and helps you build your credit history, and that’s a good thing. Using credit as an extension of your income, to pay for things you can’t really afford, increases debt, and that’s a bad thing. Keeping these concepts in mind can help you control the urge to buy things you can’t really afford.
Credit cards are not extra income or money available to you to spend. They’re loans that you have to pay back, with interest, which means that everything you buy with your credit card ends up costing you more than the purchase price. The longer you take to pay the balance, the more your purchases cost and the less money you have available to spend on other things. For a little reality check, get in the habit of calling your credit card a “loan card,” and when you’re tempted to use it, ask yourself if you’re willing to take out a loan with high interest in order to have the item you’re thinking of buying.
Ignore the credit card sign-up tables on campus. Don’t be tempted by offers of “free” goods like CDs, T-shirts, giant bags of M&Ms, or other cheap trinkets. These sign-up incentives are not really free if you sign up for a credit card with an annual fee or a higher than necessary interest rate just to get the “free” gift.
Keep an emergency fund of $500 in a savings account so you won’t feel forced to use your credit card when an unexpected expense comes up. Your emergency fund will also provide peace of mind and reduce your moneyrelated stress. If you have to use your emergency fund in a pinch, build it back up as soon as possible.
If you can’t afford to keep a cash emergency fund, leave enough credit available on your credit card to cover emergencies or unplanned needs like medical expenses or car repairs. Having this cushion for emergencies is one of the main reasons for having a credit card in the first place.
Don’t sign up for credit cards just so your friend or roommate can get a commission or points from the credit card company by recommending you. Friends don’t encourage friends to get into debt. You should make credit card decisions by weighing all the card details in light of how you plan to use the card, and choose the deal that makes the most sense for you.
Start off slowly with credit cards. You may be surprised at how difficult it can be to control your spending once you’re on your own, away from the influence of your parents. Start out with a $500 line of credit and resolve to pay it off every month. After a semester, if you’ve stuck with your commitment, raise the credit limit to $1,000 if you feel you need to.
Buying on credit can be as addictive as drugs, alcohol, or gambling. As with habit-forming drugs, the best advice is not to get started. Use your card a couple of times a month for necessities only, and pay the balance in full each month. This lets you develop a habit of using credit responsibly and build a healthy credit history.
Leave your credit cards at home. Carrying them around with you while you’re at the mall or near other temptations is asking for trouble. It’s much too easy to buy something you don’t really need and may regret buying before you even get home.
Never pay for groceries or toiletries with your credit card. If for some reason you can’t pay off your balance in full at the end of the month, you’ll end up paying interest expense on your food and expendable supplies. Charging day-to-day necessities to your card and not paying the balance in full each month is one of the early warning signs of credit card trouble.
Instead of using credit, which spends future resources, set priorities and make informed choices about what’s important now versus what’s important later, what you want versus what you need, what is ideal versus what is adequate. This is a characteristic of responsible adulthood.
Thinking that you need another credit card when you already have one is one of the warning signs that you have a credit problem. Credit cards are not something you collect, like baseball cards. Stop and reevaluate your spending and use of credit. If you really need additional credit, consider increasing the limit on your existing card rather than getting an additional credit card.
Don’t pay for spring break with your credit card. You may find that you can’t afford the minimum payments when you get back. You’d have to pay nearly $150 a month in order to pay off a $1,500 spring break tab in twelve months, at 18 percent interest. Figure out how much you can afford to spend on spring break, divide it by the number of months between now and then, and save that amount each month so you can pay cash when the time comes.
When you go out for dinner or drinks with friends, don’t collect the cash from your friends and volunteer to put the tab on your credit card, even if it will increase your frequent flier miles or cash-back rewards. The cash will be long gone by the time your credit card statement arrives, and if you can’t pay the whole tab, you’ll be paying interest not only on your own meal, but on your friends’ meals as well.
Use credit cards as an absolute last resort for paying college expenses. The average graduate student in 2003 had credit card debt of $7,831, which would take 29 years to pay off at a monthly minimum payment of 2.5 percent and current average interest rates. Your total interest payment would be over $11,000 in addition to the $7,831 you borrowed. Ouch!
One problem with credit cards is that you lose sight of the real cost of the items you purchase. Did you think that stereo you bought cost $700? Think again. If you’re paying 18 percent interest and it took you a year to pay off the stereo, it really cost you $826. Remember, if you don’t pay off your credit card each month, everything you buy costs more.
Get in touch with your feelings when you use your credit card. Do you feel important, powerful, euphoric, reckless, or happy? To be in the driver’s seat when it comes to using credit, you can’t allow your credit card to be a substitute for legitimate things that make you feel good.
To keep your credit card purchases within your budget, record each credit card purchase in your check register as though you had written a check. This helps you see at a glance when you’ve reached the limit that you can afford to pay off at the end of the month and keeps you from getting in over your head.
Your first credit card should have a low credit limit of $500. If the credit card company issues you a card with a higher limit, call the number on your statement and ask them to lower it. A low credit limit will act as a safety valve to help you limit your spending until you have time to determine what your spending habits are and whether you’ll have trouble handling credit now that you’re on your own.
Another reason to limit your credit card balances while in college is that once you graduate, you’ll also have student loans to pay off. You may not be able to afford both the student loan payments and your credit card payments.
If you receive a letter from your credit card company saying they’ve raised your credit limit, call them and decline the offer. Higher limits are an invitation to spend more than you can afford, and they affect your credit worthiness if you need to borrow for something else, like a car.
Credit card companies hand out credit cards to college students like they were candy, but once you graduate, you’ll have to earn them by using credit responsibly. Use your college years to build an excellent history of using and repaying credit. Not only will you graduate with little or no credit card debt, you’ll also make it easier to get car loans, mortgages, and favorable interest rates.
If your credit card balances are high in relation to your income when you graduate from college and are living in the “real” world, the credit card companies will jack up your interest rates. If you thought it was difficult to pay off your balances when the rate was 14 to 16 percent, you will really be hurting when you’re paying 24 to 27 percent. You may find it impossible to make even the minimum payments. Keep your credit card balance to a minimum so you don’t have to contend with this problem when you graduate.
Your credit card debt can also affect the interest rates for privately funded student loans. If you’ll need student loans throughout your years of college, keep this in mind and keep a low credit card balance.