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Students can establish credit and learn to manage debt with low-fee credit cards geared specifically toward them.
For university students, having no credit history and no consistent employment means they’re ineligible for most standard credit cards. However, plenty of banks want to build brand loyalty – and potentially some high-yield debt – specifically with students, and offer cards designed to attract them. Student credit cards typically come with no annual fees and low spending limits to protect new users against bad spending habits. In addition to having a new option for payment, a credit card is a student’s quickest way to establish some credit history – but to ensure that this history isn’t ruined, the debt on these cards should be carefully monitored, particularly since the purchase rates on such cards are frequently higher than regular cards.
There are, of course, restrictions on who can obtain a student card. It requires the applicant to be an Australian citizen over 18 enrolled in an accredited school; it also requires a co-signer such as a parent or guardian to guarantee the debt repayment. Frequently, an applicant also has to have a savings account with the issuing bank in order to get the bank’s credit card.
Like other plastic, student credit cards can come with introductory offers, such as waived annual fees or low or zero purchase rates. Some cards also do instant approval (or rejection, as the case may be).
A student credit card is a good opportunity to learn to use a credit card responsibly in a fairly low risk way – the credit limit is kept intentionally fairly low, meaning you can only overspend so much before your card maxes out. Student credit cards are also affordable – they typically have $0 or very low annual fees. It’s also great for building credit history – if you pay off your debts on time, it shows future credit card companies that you can be trusted with a more powerful card because you’ve been faithful with the last one you had.
Unfortunately, yes. Even though the credit limits are low, any credit card can open the door to building up debt. And student cards often have high interest rates, making debt even easier to accrue. If a student doesn’t fully understand how interest works and isn’t organised enough to make their repayments punctually, they could easily get themselves in trouble.
You want a card with low or no annual fee, low interest rates and, if you have debt elsewhere, a balance transfer option. The card should also have basic security features.
Here are a few basic tips to keep you out of trouble:
If you don’t make your monthly repayments on a credit card, you’ll get charged interest. If you just let the debt sit there without paying it down, it will automatically grow astronomically. Additionally, if a credit provider sees that you’re not paying down your debt, they can even increase your interest rate and you’ll be in even more trouble. In addition to accumulating overwhelming debt, you will damage your credit rating. This will affect any future credit card applications and can even hinder you getting a rental property or loan of any kind, including a car or home loan. If you want to keep your options open in the future, do not go down this track. If you’re in trouble and need help, there are a wealth of resources online, in local libraries and in credit centres everywhere.
Debit cards function very similarly to credit cards except for one major difference. Debit cards use money you already have, credit cards use money you don’t have (and can put you into debt unless you manage your account). Unless you have to spend money you don’t have, a debit card is more than fine for pretty well anything you’d use a credit card for, including online shopping. The best part is it eliminates the risk of losing track of spending and getting into debt. If you’re worried about needing funds in an emergency, start putting aside some money each week for that very purpose now.