The majority of students embarking on a college degree course are young and lack financial experience. Many are taking on huge student loans with little realization of the long term consequences. One vital financial lesson that students need to come to terms with is living within their means, and by their very nature credit cards offer the ability for students to live beyond their means.
Although credit card regulations have been tightened and they are no longer readily available to all, student credit cards can still be issued to those with a responsible co-signer, or those with proof of an income. This puts some measure of control on the sector that was previously lacking. Hopefully this will clear up some of the appalling debt problems which students have encountered through inexperienced and profligate use of credit.
A study by Sallie Mae showed that only 17 percent of college students paid off their credit card balances in full, whilst the APLUS study revealed that over 70% of students had engaged in risky financial behaviour. Many students use credit which they cannot afford to repay in a timely fashion, thus accruing interest on their debt. Many succumb to late payment charges, or find their interest rate is increased to the penalty rate, further compounding their debt.
Many students have graduated with high interest credit card debt which has by necessity become their first priority when they enter the workplace. This restricts them from paying surplus income towards reducing the principal on student loans, which would be their best plan of action.
Student credit cards can have their place in helping students to establish a credit history that will be helpful upon graduation. A good credit score will enable them to procure lower interest rates on future borrowing and rent apartments with greater ease. However the downside is that those students who fail to handle credit cards responsibly will find that they negatively impact their credit score, which is effectively worse than having no credit history.
Students who really want to come to terms with handling their budget and keeping a sharp eye on debt levels are best served by avoiding credit cards until they are certain they can use them with fiscal responsibility. It is all too easy in the first rush of college to miscalculate the semester’s budget and spend beyond ones means; not fully comprehending that putting pizza and partying on credit can have long term implications.
Students who have work experience are more likely to be able to handle credit wisely and can opt to use credit cards that offer rewards points and rewards for paying on time. It is vital though for students to ensure they understand how credit cards work and that they familiarize themselves with the small print. This is often best deferred until the student has some viable financial experience.