Credit cards and college can be an interesting combination. On one hand, you have an opportunity to establish credit and learn how to manage debt early. On the other hand, if you’re not careful, you could graduate from college with a degree – and reams of debt. To help you avoid that, here are some mistakes college students make with credit cards.
You Don’t Know How Important Credit Is
It’s vital that you use your cards responsibly – if you have them. Many experts suggest you need a couple of years of college before you’re ready. But if you’ve read this far, you either have credit cards or will soon.
But do you know how much credit matters in the real world? It does, and if your peers try to tell you differently – perhaps they’re nudging you to put a ski vacation you can’t afford on plastic – they likely don’t know better themselves.
The fact is, if you handle your cards well, you could save yourself beaucoup bucks over your lifetime, and have better life opportunities. For instance, individuals who have good credit get the lowest interest rates on mortgages, and in some states, lower car insurance premiums.
Some potential employers even eyeball your credit report before deciding whether to hire you. Wouldn’t it be awful to lose out on a plum gig because you wanted a whole new wardrobe, but then couldn’t handle the payments? By contrast, your prospective boss may see you in a more positive light if your credit report shows you’ve handled credit responsibly.
You also may need to rent an apartment while in college, and if you do, you’ll need to have good credit, or if your file is thin, at least not have bad credit. If your credit is damaged, you may end up having to live in a less-desirable crib or getting your parents to co-sign your lease. If your folks know about your credit woes, though, they may or may not want to put their credit on the line, since they’re liable if you don’t make rent.
You Let a Payment Slide
So, you took the money you’d set aside for your monthly credit card bill and blew it on a concert. It’s just one payment, right? Wrong-o. There’s never anything casual about skipping a credit card payment. For one thing, because you’re young, you’re not going to have a lot of data on your credit report, meaning that anything negative will stand out. And that one negative – a default or late payment – will live on your credit report a whole seven years, potentially inhibiting your ability to buy your first home.
If you continue to blow off the payment, your account may enter collections. This means you’ll have a late payment as well as a default on your credit report. That’s not good, and you may end up needing credit card debt relief.
You Don’t Know Where the Money Went
If you don’t get your spending under control, you’re in for a world of hurt. You likely already have student loan debt, so you certainly don’t need more. What you do need is to create a budget and figure out where your money’s going.
You Don’t Get That Compound Interest is Awful
Many college students don’t realize that compound interest makes your debt grow fast. Consider this, for example: You have a credit card with s $5,000 balance and a 20% APR. Say you want to make payments of $150 monthly. It will take 50 months to clear the debt and you’ll wind up paying $2,359 in interest. Thus, your $5,000 balance ultimately costs $7,359.
Now you know common mistakes college students make with credit cards. Hey, college is an awesome time that can help set you up for a rad financial life. If you make a mistake, get right back on the right track.
After all, your financial future is in your hands.