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Pitfalls of Student Cards

Avoid the pitfalls of college student credit cards - learn from other student's mistakes! Here are the cons of student credit cards so you can get the best value in your low interest rate student card.

Many people worry about student credit cards, and for good reason. If you are not careful, you can find yourself subject to large amounts of debt in a relatively short period of time. Most people have their first experiences with credit cards at age 18 or 19 when they head to college. And, unfortunately, credit card companies care less about educating students about responsible credit card use than they do about making a great deal of money of interest charges and fees.

If you want to take advantage of student credit cards, but are concerned about racking up a great deal of debt, there are some things that you can do to avoid the common pitfalls of student credit card use:

Choose a credit card with a lower interest rate

Avoiding common pitfalls of student credit cards starts before you borrow a dime (remember: a credit card is, in fact, a loan). You need to choose your student credit card carefully, looking for the card that best fits your needs. One of the most important criteria should be the interest rate. It is very difficult for students to get credit cards with fixed interest rates, but if you can find one, that is helpful. Also, try to find a card with a lower base rate. Most student credit cards offer 13.9%, 15.9%, 19.9%, 23.9% or 29.9% APR (variable). You should try to get a card with lower interest. This way, you will pay less in interest charges if you carry a balance.

Make payments on time and in full

This is a very important point. College students are among the demographic most likely to make late payments. One of the things that can really add to your debt is the recurrence of late fees. Many student credit cards charge between $39 and $43 (or even more) for a late payment. Your late payments are added to your credit card balance, and this means that you pay interest on your fees as well. Regular late fees, when added to your credit card balance and compounded by interest, can quickly put you into greater debt.

Avoid going over the limit

Another common pitfall of student credit cards is going over the limit. Many student credit cards have lower credit limits, somewhere between $500 and $1,500. If you are not paying attention, it can be easy to exceed your credit line. When this happens, over the limit fees are added to your balance. These fees are about the same amount as late fees. One of the hazards of credit card fees is the fact that they can build on each other. If you make a late payment, and you are close to your limit, the payment might push you over the limit. It is also worth noting that interest charges can also push you over your credit limit. When this happens, you have even more fees – that accrue even more interest.

Try to use your credit card only for what you can afford

Rather than view a student credit card as a source of income (which it is not), develop the mind set that a credit card is a tool. A credit card can be useful for easing cash flow at the beginning of the each semester (when you have the most expenses), and it can help you establish and build good credit. But that is all. Do your best to only buy things that you already have the money to pay for. Plan to pay off larger purchases (such as your textbooks and/or student fees) over the course of two or three months (four at most). This way you will have your semester’s expenses paid off when the next semester begins. When you budget so that you are not always carrying a balance, you can stay out of debt – and avoid most interest charges and fees.

Upgrade your student credit card when you can

Interestingly, according to Nellie Mae, most people keep the first credit card that they got. While some student credit cards have good programs and some advantages, most student cards are inferior to other cards. After you have gotten used to using credit responsibly, and after you have built up a bit of a credit history, try to find a credit card that offers you more (in terms of credit line, lower rates and rewards programs) than your student credit card. If you use your student credit card responsibly for a couple of years, you should be able to upgrade to something better.

When you use financial planning in your efforts with student credit cards, it is possible for you to avoid the common pitfalls of student credit – and stay out of debt.

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