(NOTE: This is the eighth in a ten part series on student loans, check back every Tuesday for the next installment – Jason)
You see them on campus, right out there in broad daylight. Surrounded by a group of happy, smiling fools, proudly waving a free t-shirt, maybe a keychain, sometimes even an i-pod. The predators are using this grown up candy to lure unsuspecting post-secondary students into the crazy world of credit cards.
Starting college or university is often compared to starting kindergarten, and the same lessons apply. Don’t take candy or gifts from strangers. DANGER! If Johnny jumped off a bridge, would you do that too? DANGER! Don’t believe everything you hear. DANGER! Just because you want it, doesn’t mean you need it. DANGER!
Credit cards on campus can be a dangerous trap for the unsuspecting student. The enticement of what for many is their very first un-parented application for credit makes the student vulnerable to entering a world they do not fully understand. Lack of experience about interest rates, payment schedules and credit ratings can turn that first credit card into a traumatizing event.
Having said that, there is a flip side. Long term, your credit rating will be rewarded for a properly managed credit card account. When you stop being a student, the credit card you opened, if handled with care, will boost your credit history for years to come. Healthy credit standing means better interest rates on things like car loans and mortgages, along with other benefits, such as discounts on insurance.
So, before you join the crowd in line to get your student credit card (and the free gift), take stock of your situation to make an informed decision.
- Payments: Look at your debt situation. Can you really afford another payment? You will probably tell yourself that you will only keep it for emergencies, but somehow, student credit cards always find their way into use. Between student loans, food and rent, can you honestly afford another payment? If the answer is no, walk away from the nice person at the sign up table.
- Read the Fine Print: Once you sign the application, you have agreed to the terms and conditions of the cardholder agreement. So, what exactly are you committing to? You cannot rely on the salesperson to tell you what it says, you must read it yourself. Flip the page over and read the fine print. Is there an annual fee? What is the interest rate? Is there an introductory offer? If so, what happens when it expires? If reading it gives you a headache and it all sounds like gobbledy-gook, put the pen down and back away from the table! You can apply for a credit card with fewer loopholes at any bank.
- Forget about the Free Gift: People who make all their financial decisions according to the freebies and bonuses usually end up badly in debt or bankrupt. Forget about the free gift and base your decision on whether or not it’s actually a good deal (no annual fee, low interest rate, no teaser rates). If you think it’s a good opportunity, then go ahead and apply, and take the free gift for what it is, an extra perk.
- Withstand the Peer Pressure: If you have doubts or you are in any way uncertain, don’t let your friends talk you into it. If you miss out on this deal, you need not worry, another one will come along sooner than you think.
When it comes to handling student debt and finances, student credit cards are usually the most expensive form of credit and the toughest to pay down. Therefore, if you’re already feeling the burn from you student loans, it’s best to just say no to student credit cards.