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The Risks and Rewards of Credit Cards in College

Jason Steele

Cash-strapped college students have a track record of getting into trouble with credit cards. Too often, it can take them years to pay off their debt and they will incur thousands of dollars of interest charges as they do. So it’s no wonder that so many students and their parents have become extremely wary of credit card use in college.

But is their fear warranted? Can college students responsibly use and even benefit from having credit cards?

Consider the Risks

First let’s take a look at the risks of using credit cards in college:

  • Overspending. Students who are new to credit card use are especially susceptible to overspending. Like all credit card holders, students can choose the terrible strategy of “charging it” and worrying about the payments later. When the bills come, college students may be counting on future income, or even their parents, to bail them out. Finally, peer pressure to go along with the crowd can also be more effective in the college environment.
  • Debt. The close cousin of overspending is debt. Sadly, credit card debt is habit-forming and the practices that students begin in college can remain with them long after graduation.
  • Interest and fees. Once credit card users fail to pay their entire balance in full, they will owe interest on all their purchases from the day of each transaction. And when payments are not made on time, late fees and penalty interest rates can spiral out of control.

Advantages of Using Credit Cards in College

  • Generating a credit history. Sometimes, college students successfully avoid debt, yet graduate with little credit history. For example, Tovah Ellner, who works at a commercial real estate brokerage in Denver, rarely used her sole credit card while attending the University of Colorado at Boulder. “Even while studying economics and business administration, no one told me about any of the benefits of using credit cards,” she said. “And when I graduated and started working, I still didn’t have enough of a credit history to be approved for the reward cards I wanted.”  Students may also want to build a credit history in order to qualify for a car loan or a home mortgage after graduation.
  • Building good habits. Just as college students can build bad habits when they get into debt, they also have the opportunity start using credit cards responsibly. With a limited budget, and some parental guidance, the college years can be a time for young adults to prepare themselves for “the real world” beyond graduation.
  • Convenience and security. Like all credit card users, college students will want to have access to a method of payment that protects them against fraud and theft to a greater degree than cash, checks, or a debit card can. Furthermore, parents sending their children to school away from home will often want them to have a access to a credit card in case of emergencies.

A Third Option

Fortunately, parents can help their children build credit by making them authorized users on their accounts (though you should set ground rules), rather than have a student apply for a card in their own name. This additional option may be best for students who need a card for emergencies, but are not ready to manage their own accounts.

College students can leave their course of study as “undecided” for a few years, but they will have to choose whether or not to hold a credit card. By considering all of the advantages and drawbacks of credit card use, college students and their parents can make the best decisions about these important financial instruments.

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