Finances & Debt

College Students and Credit Cards: 5 Tips for Managing the Mix

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Across the country, thousands of students are trekking off to college with independence in mind — and credit cards in hand. Establishing credit (and good spending habits) is an essential part of striking out on their own, but what can you teach your children so they don’t flunk out of their financial responsibilities?

According to the 2013 Sallie Mae report, “How America Pays for College,” those students who used credit cards charged an average annual amount of $3,156. That, combined with the lack of experience many students have in dealing with credit card debt, along with the growing burden of student loan debt graduates now shoulder, creates a potential perfect storm of financial stress for young people.

Fortunately, the Credit CARD Act of 2009 (commonly referred to as the Credit Cardholders Bill of Rights) helps protect college students by ensuring greater transparency regarding interest rates and fees, as well as prohibiting aggressive marketing tactics aimed at them. It also bans credit card approvals for anyone under 21 years old unless they have an adult co-signer or can prove they have sufficient income to pay the bills.

There’s also several things you can do to help your college student use credit wisely — and work toward financial independence:

  • Discuss the positive aspects of credit card ownership, such as the opportunity to establish credit, the benefits of paying off the balance each month and maintaining a good credit score.

  • As your child will be bombarded with many opportunities to buy new and fun things (clothes, trips and take-out food, for starters!) emphasize the importance of spending wisely and focusing on using a credit card for emergencies only.

  • Help your children understand that paying the minimum amount each month does little to pay off the credit card balance over time – and how the corresponding interest rate accumulates.

  • Make sure that you and your child have a plan in mind for making the monthly payments — and that he or she will call you immediately if there is a problem.

  • Encourage them to understand how the Annual Percentage Rate (APR), the yearly rate of interest on your card, works — as well as what types of terms, late fees or penalties (i.e., the fine print) come with it.

Perhaps the best way for college students to manage credit card spending is to employ a little trial and (not too much!) error. Kelsey, a college seniior, uses technology to keep on top of credit card balances.

“I really only use my credit card to buy gas,” she states. “Then I can pay off the fairly low balance in full every month right from the app on my phone. The app is really convenient, because I can monitor my checking, savings and credit all on my phone quickly and easily.”

Like most college students, Kelsey’s also discovered how easily a credit card balance can grow. She adds, “Choosing one thing to put on my credit card has definitely helped me learn how it all works without getting myself in trouble. But during the months that I’ve had to drive more I’ve been surprised by how quickly a few $15 purchases can add up!”

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