Kids going off to college for the first time have a huge adjustment to make in their lives. They are not only leaving the security of their family home, but are being faced with the most independence and responsibility they have had in their young adult lives. Colleges are a great place for these kids to expand their knowledge, make new friends, try new things, and stretch their wings. Unfortunately they are also bombarded with advertisements for everything from beer to credit cards. It is in these years that most of their debt is being created and it can significantly affect the rest of their adult lives. Did you know that 70% of all college students have at least one credit card? Does your college student have a credit card?
Should Your College Student Have A Credit Card?
When it comes to college students and getting their first, second or third credit card parents have a varied reaction to the idea. Some feel it’s a good thing and help their child apply so that they can “begin to build credit”, some are avidly against it, and may other’s have no idea if or when their student got a credit card.
Because the credit card companies feed of off the naivety of these young adults you will often find them hanging out at college campuses. Their representatives often entice students to apply for a free gift. Apply and get a free t-shirt, apply and get a free water bottle, apply and potentially fall victim to a life full of debt.
So, should a college student have a credit card? In my opinion the answer is a hard no. We plan to teach our kids that there are other ways to build the credit they may need someday. We also understand that as adults they will do what they want. This means we have to educate them on the responsibility of owning and using a credit card.
What Your College Student Needs To Know About Credit Cards
Far too many kids go off to college unprepared for the responsibilities of adult finances. They have not been taught how to properly use a credit card, create a budget, and avoid living beyond their means. Let’s face it, many adults don’t know how to do that either.
As I mentioned earlier we must educate them if we want them to avoid life long debt. Not sure where to start? Keep reading.
Make A Budget Together. Hopefully you and your child started doing this when they were hired for their first after school job. If not, it’s not to late to sit down and teach your teen how to budget. Creating a reasonable budget together for their finances will give the something to work with when on their own.
Explain The Fine Print: There is a reason the saying, “the Devils’ in the details” exists. Everything you really need to know whenever signing any contract whether it’s an apartment lease, TV service contract, or a credit card is in the fine print. If your family is exploring credit card offers for your college student, it’s important to sit down and explain how the fees and interest rates work. That means sitting down and taking a close look at the fine print. There you will find all the terms and conditions associated with that card.
Minimum Payments: There is a big difference between making a minimum payment and paying off the full balance every month. It’s important to discuss the differences and make sure they understand the pros and cons of each payment method. Personally, I will always advocate for paying off the full balance each month.
Teach Proper Credit Utilization: Teach your college student how to maintain a good credit score with proper credit utilization. That means keeping their balance of debt to income to debt ratio below 25%, paying their bills on time, and always paying more that the minimum due.
Review Monthly Bills Together: Schedule a sit down with your student (even if it’s on Skype) to review their monthly bills, budget, and how much is being spent. By taking the necessary time to work with them you are helping them create healthy lifelong financial habits.
Don’t Rush To Bail Them Out. Mistakes will happen, over spending will happen, poor choices will happen. It’s all an important part of learning to be financially responsible. While your first instinct may be to run in and fix the problem, I encourage you not too. Instead discuss realistic options with your college student on how they can take care of their debts on their own. This could mean working an extra job, selling something, curbing their spending and creating a stricter budget that allows them to pay off the additional debt.
So, should your college student have a credit card? In the end it is a personal choice, one that should be based on the maturity level of your child. Whatever you decide it’s important to sit down with your child and teach them how to handle a credit card properly. If you do, it will lessen the chance that they will fall victim to the gimmicks the credit card companies use to gain unsuspecting and uneducated students financial future.
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