Most college students don’t have a lot of cash for extras; the rising costs of tuition, books, and related fees often requires a strict budget, even for the student that carries a part- or full-time job in addition to their schedule of classes. For this reason, having a credit card can seem like a godsend, allowing for additional funds to eat out, take a trip, or hit the clubs with friends. Unfortunately, it can also spell disaster for a kid that is away from home for the first time and has no idea about the trap that the common credit card can spring on the unwary shopper.
When you rack up debt, max out your card, and pay the minimum monthly fee (which is all you can afford on your salary), it could take you several years to pay off the debt (assuming you don’t make any additional charges) and you’ll end up paying way more than you ever intended to for your purchases. There’s no trick; it’s all in the fine print. It’s just that so few people really understand what they’re getting into with credit cards. Here’s how you can avoid the trap.
For starters, you shouldn’t have a credit card in the first place if you don’t know how to use it responsibly, and not many college students do (heck, most adults can’t use a credit card properly – how can college kids be expected to?). But emergencies do spring up, so if you absolutely must have a card, it behooves you to pick a good one. Since you probably get dozens of offers each year (that’s what happens when you start to build credit by taking out a student loan), you might have trouble choosing the best one.
There are a couple of things you should watch out for. One is an offer that doesn’t come directly from the credit company (VISA, MasterCard, etc.). If it doesn’t bear their logo, throw it away; it’s from a third-party company that will charge fees so that they can get their cut. You should also watch out for “low introductory rates”, which really only signal that your rate will go up eventually. Finally, choose a card only if it has an interest rate under 10% (7-8 is standard) and no annual fees (cash withdrawal and other fees are generally unavoidable, but you don’t need to pay a yearly fee for the privilege of holding a card).
Next you need to carefully monitor spending. Reserve your credit card for specific purchases only, and try to limit them to necessities like gas or groceries, things that you would spend your money on anyway, rather than frivolous items. In short, don’t ever spend more than you can afford to pay off in a month. The only good way to use a credit card is never to carry a balance. But if you do find yourself spiraling into debt, simply get rid of the card. Cut it up or send it to your parents for safekeeping (you can call them in case of emergency). Then pay off your debt as quickly as possible. Pay early (when you get your pay check, for example), make multiple payments each month when you can, and ALWAYS pay more than the minimum. Every month that you carry a balance means you’re putting money in the pockets of the credit company (and getting nothing in return).
Leon Harris writes for Credit Card Compare where you can check out about fees for a credit card balance transfer and browse through reviews to find the best card for you.