Of all the money issues a student is faced with over their college careers, credit card usage continues to confuse students the most. According to student loan provider Sallie Mae:
- 23% of college students had obtained a credit card prior to enrolling in college
- 43% of college students stated that they obtained a credit card during their first year in college
- The average college student has 4.6 credit cards
- Average credit card debt upon graduation is $4,100
On one hand, most students are advised to stay away from credit cards either by parents, friends, or knowing someone that had a bad personal experience with debt. On the other hand, a credit card could help in an emergency, is safer than cash or a debit card, and helps build a credit history. Nevertheless, credit cards require additional care and attention from the card holder.
A credit card is issued by a bank or lending intuition. It has a credit line or maximum amount that you can spend on the card. The card carries an interest rate on the money you spend, typically 9% to 18% annually. You can avoid interest by paying the balance in FULL each month, otherwise interest is added to the amount you owe.
Used responsibly, credit cards offer many benefits to students:
- To start and build credit history
- Emergency funding for repairs or medical needs
- Earn cash back or other rewards
- Offers a vehicle to track expenses each month
- The time value of money: cash does not come out of your checking or savings - and continues to earn interest - until you pay the bill
Credit cards also pose some challenges to students:
- Easier to overspend compared to only spending the cash in your pocket
- Carrying a balance (not paying the full balance each month) can add considerable interest charges
- Carrying a balance can lead to higher debt
- Can damage credit history if extended above the maximum limit, paid late, or not paid at all.
- May require a cosigner
There are several advantages to using a credit card responsibly but let us be clear: If you cannot manage your money, are behind on your bills or do not pay bills on time, or simply do not want the added responsibility of tracking your purchases, DO NOT USE A CREDIT CARD. Stick to cash!
How can Student Money Management Services help?
SMMS can help educate KU students about credit card management, proper uses, and possible pitfalls.
The Federal Reserve Bank offers an excellent tutorial about how credit cards work
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