Student Credit Cards

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:

• Have some life goals – This is a great starting point because it will motivate you to keep out of debt more than anything else. If you want to buy a car or house one day, you’ll have the incentive to live conservatively for the sake of the greater goal. Whatever money you get, try to put a little of it aside every week toward your goal, no matter what.

• Make a budget and stick to it – Be realistic when you budget and include recreational spending because this is normally where the money gets blown. If you know what you’ve got to spend, you’ll be more likely to stick to it. Break it down into a monthly and weekly budget. Get some help from a friend or online if you’re stuck.

• Live within your means – That’s right, everyone else might be accumulating debt, but you’ll be so much better off spending only what you have or what you know you can pay off in full at the end of the month.

• Have an emergency fund – Most people rely on their credit card for emergencies. You’ll do yourself a favour if you set aside some money in an emergency savings account. Then, when an emergency comes (which is inevitable), you won’t have to go into debt amidst an already stressful time.

• Pay in cash as much as you can – Paying for things in cash means you’re paying for things with your own money. It’s much easier to lose track when you pay for everything with a plastic card.

• Use your card as little as possible – Sometimes you need a credit card for online purchasing or other needs, but because student cards don’t generally have any rewards programs, and because they have low credit limits, you’re not doing yourself any favours by using it for the sake of using it. Keep it for when you have no other option.

• Pay off your balance in full each month – You want to build up a good credit rating and stay out of debt. Paying off your balance and covering anything you’ve spent that month will accomplish that.

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.