If you’ve just received your first student credit card, congratulations. Perhaps you’ve used pre-paid debit cards in the past, or maybe this is your first time with plastic. Credit cards are just tools for spending the money that you do have, and are not inherently good or evil. If you use them well, they will open doors for your finances, but if you abuse the credit offered to you, credit cards could lead you down the dark path of unmanageable debt.
Here are some suggestions for students to consider when handling their first credit cards.
1. Get a job!
Normally, I direct people towards skipping a job during college to focus on academics. The best financial advice to give a student today is to get out of college quickly to prevent you from incurring another year of student loan debt or paying another year of tuition. My girlfriend in college graduated with a double major in three and a half years (and paid for one semester by selling Beanie Babies on eBay — but that’s another story). She was involved in many social activities, as well, but her goal was to graduate as quickly as possible. I, on the other hand, loaded up my schedule with courses unnecessary for my major, dabbled in several different minors before settling on one, and had to spend one semester student teaching — I graduated after four and a half years.
If you’re going to want to spend money during college, though, and take real vacations during your breaks rather than work, and you don’t have generous relatives to fund college debauchery, you’re going to need a job. The best types of college jobs are those that allow you to use the time on the job to study for your classes. A popular option for a quiet job is a position at the university’s library. When I was in college, I worked for a short time at the department of music’s media library. When I was in college, the World Wide Web was fairly new, so I also got my first taste of working for myself: I was a consultant to university staff, helping them build personal websites, on which they could publish material pertaining to their academic area.
With a job, you’ll be able to justify using a credit card for spending — as long as you spend within certain guidelines.
2. Get a budget!
This would have helped me when I was in school, but as I look back, I realize I had no concept of money at that time. You have to know how much money you have coming in, how much your regular expenses cost, and how much you have remaining each month for personal items. Living on campus makes this process easier. If you opt for a meal plan, you’ve wrapped one of your biggest expenses, food, into your college tuition bill. You could save a lot of money by opting out of the meal plan and choosing to prepare your own meals. This could be a great skill to learn, but realistically, most students don’t do this.
Budgets are most effective when they are relevant and flexible. Here is how to design and stick to a flexible budget.
3. Get a checking account!
You should have a free checking account before you consider using a credit card. Deposit your income, whether from a job or from generous relatives, into your checking account, and use that money to pay your credit cards. If you haven’t already, find a bank with branches that are convenient to both you and your parents, so whether you’re home or at school you can easily access your money. If you’d prefer to work online only, the proximity of a branch may not be important, but keep in mind depositing money can be a little more difficult when dealing with an online-only checking account.
4. Get automated!
The two best types of financial automation are direct deposit and credit card payment. If you have a job, see if the employer will allow your paycheck to be sent electronically to your bank. Not all college jobs are “on the books” in my experience, and direct deposit isn’t an option when you’re dealing with cash. If, however, you do receive a check, look into direct deposit. All you need to provide is your bank’s routing number and your account numbers, though some employers ask for a voided check.
All modern credit cards let you schedule payments online. For each credit card I use, I schedule the bill to be paid in full from my checking account a few days before the payment is due. The few days between the payment date and the due date allow me to research and fix any payment problems if necessary while taking advantage of as much as the grace period as necessary. Linking a checking account to a credit card to facilitate this automated payment is not always instantaneous. There may be a delay of up to a month between the time you begin the process of linking the account and the date your link is ready for automated payments. Keep that in mind and don’t forget to make any manual payments if necessary.
5. Think about your spending.
College life is full of a variety of temptations, and spending more than you earn is just one of those temptations. The risks might seem minor in comparison to some activities, but getting into debt during college (beyond any student loan if you have any) can be something you pay for over the course of the rest of your life. Personal finance boils down to simple math: you survive when you spend less than you earn. Simple math doesn’t always make its way into the brain when you are out shopping with your friends or planning a vacation. Credit cards help make the spending process seem automatic. When you take cash out of your wallet, there’s a psychological barrier that stops you from handing money over willingly. You don’t want to part with cold, hard cash.
A credit card doesn’t feel like money. A swipe, a bump, or a click of a mouse button are all that’s needed to pay for something you’d like. The psychological effect is not as strong. While you may hesitate before spending cash, swiping a card almost feels fun. Recognize that spending with a credit card is easier in general, and you’re likely to spend more. With this knowledge, you can work to counteract the effect by training yourself to create your own barrier. Before you swipe the credit card, think. Consider whether this is something you need and if you could wait another month before making the purchase.
6. Don’t use your credit card for your friends.
Generosity is a commendable personality train. You may seem like you’re being generous when you go out with your friends and offer to collect cash from everyone to pay for dinner with your credit card. With this technique, leaving a group outing could result in hundreds of dollars more in your wallet and almost as much charged to your credit card. Unless you can deposit that cash into your checking account, you may be tempted to spend it. It may be true that sneaky people could probably find out a way to owe less for dinner than they should have by collecting cash from everyone, it’s not a good policy.
Invariably, there’s someone at the dinner table who did not bring cash to pay for dinner. It’s always good to cover for your friends when possible. In the end, with a good group of friends, these types of problems tend to even out over time unless someone starts to display a pattern of mooching. Despite the psychological barrier preventing people from spending too much cash, just having that cash in the wallet can be too tempting for some.
7. Use your credit card infrequently.
Even if you pay your bill automatically on time and in full every month, keep the card away. There is a world of exciting things to do that require no spending at all, whether with cash or a credit card. For example, use your free time to explore what your town or city has to offer. Ride a bike and workout at home rather than signing up for a gym membership — a recurring charge on your credit card.
A student credit card can be a good tool for building credit at a young age while learning the responsibilities that go along with managing money. I’ve seen people graduate college with thousands of dollars of debt and beg the world to help pay the bills, but in the end, you’re the only one who will be held responsible. If your plans for the future include having a family, buying a house, working at a job you love regardless of the income, or retiring from your job, you owe it to yourself to start managing your money well now rather than waiting until after you’re out of college.