For most kids, college is the first step into the world of adults, the first time they “escape” parental control and take charge of their own finances and choices. College is a great learning experience in many ways, but for many students it’s also the place where they make their first big, financial stumble-using a credit card to bury themselves in debt.
According to an annual survey conducted by Sallie Mae, the average credit card debt of all college students in 2007-2008 was $3,173. The higher the grade level, however, the higher the credit card debt—the average credit card debt of freshmen was $2,038, compared to $4,138 for seniors.
College students get into credit card debt for many reasons. According to Sallie Mae, in one survey, 92% of students said they use their credit card to cover shortfalls, including paying educational expenses like textbooks or even tuition. Credit cards, of course, also make it easy to overspend—charging items one would otherwise not be able to afford. No matter the purpose of the charges, however, the majority of college students don’t have the income to pay down the balance on their credit cards.
Student credit cards, at the same time, offer numerous benefits as well. Apart from the convenience they afford, they can help you establish a credit history, giving you a head start when you graduate from college and have to apply for a job, rent a home, or when needing a car loan or a mortgage. To take advantage of the benefits of credit cards and avoid making the most common student credit card mistakes, follow these few simple rules:
1. Never pay just the minimum due
Paying only the minimum monthly payment is a trap that’s very easy to fall into when you’re just starting out using credit cards. Paying the minimum due is very expensive. Particularly for credit cards with a high APR, you’ll end up paying off the original balance several times over, if you pay just the minimum due. Take a moment and use this easy credit card calculator to see just how expensive it would be to pay your credit card balance off with only the minimum payment due every month.
2. Set a goal to pay the balance off in full each month.
One of the main problems with using a credit card is that it doesn’t seem like spending money. You don’t have to have the money upfront to pay for something you want, so there’s not that same pain of paying as you have with cash. This makes it all too tempting to just whip out your credit card and make that purchase. The less you pay on the card each month, the more you continue to defer the pain of paying. After all, if the card balance is $1,500, but you only pay $50, it doesn’t seem so bad.
As an antidote, set a goal to pay the bill off each month. Knowing that you have to pay the bill in full each month will force you to think about whether or not you can really afford that purchase after all. Of course, there will be times when you make a purchase that you cannot pay off in full when the bill comes in. In that case, have a plan in place to make two to three payments over the next few months to pay the debt off.
3. Keep track of all your charges
With credit cards, it’s all too easy to spend more than you realize, simply because most of us don’t keep track of our charges. To avoid this trap, write down every charge you make on all your credit cards, including regularly recurring charges. Add them up as you go in the same way a you would balance your checking account. This is the easiest way to make sure that you stay within the limits of what you can afford to pay off at the end of the month.
Managing credit cards is not rocket science—it’s mainly a matter of establishing a few good habits. If you follow these simple rules through college, you’re much more likely to be among the minority of students who can pride themselves in graduating without any credit card debt.
