Using Credit Cards Wisely
November 19, 2013
Every coin has two sides, so do credit cards. College students often believe that they will be able to make the payments on their credit cards when they get a job after graduation, and it might not be true. According to Credit.com, 91% of undergraduates have at least one credit card; the average undergrad carries $3,173 in credit card debt; and 7.2% of students drop out of college due to debt or financial pressures.
Gordon Putman, a Standard-Examiner Columnist, says not all students can pay back the debt they’ve accumulated. Here is why:
“The worst part about college students having so much credit card debt is that it takes so long to pay it off. Even if an individual is able to make the minimum payments, it would take more than 12 years and $1,115 in interest to pay off a $1,000 bill on a card with an 18 percent annual rate,” he said. “If students fall behind in their payments, they get slammed with high late fees. And it’s easy for things to get out of hand.”
However, he also agrees that most college students start out with little or no credit, and having a credit card seems to be a good idea since they can start building a credit history.
To keep college students out of credit card debt, it’s vital to know the advantages and disadvantages of credit cards. Below are some top pros and cons of credit cards according to Yahoo! and Investopedia:
- Practicality and Flexibility
- Credit cards are widespread and people can use them practically everywhere.
- They can boost people’s purchasing power because they can be used to buy goods and services over the phone, through the mail, and online.
- They provide financial backup in the event of an emergency, such as an unexpected healthcare cost, job loss, or auto repair.
- They allow people to purchase items and pay them off in monthly installments.
- By using credit cards, people can dispute billing errors and defective merchandise.
- Many credit cards now offer discounts at stores and rewards. For instance, when you make purchases using credit card you can collect reward points; these points accumulate and can be used to get free items, such as airline tickets.
- Some cards may offer cash back as an incentive to use the card.
- They can help build credit history.
- They can help improve people’s credit score, such as the FICO credit score, when they pay balances down by the due date. This improved credit history paves the way for lower rates borrowing rates on other loans, including a mortgage.
- It’s easier to keep track with spending. They keep a record of people’s expenses, helping them to monitor their financial activities. This can help people to control how much they can spend.
- Improper Use
- Some people will spend more money than they should have with credit cards, since it’s easier, faster, and more convenient to make transactions with credit cards.
- When people default on credit card payments, they are charged with late fees and interest, increasing their debt load.
- Acquiring too much credit card debt can harm people’s credit scores.
- Credit card fraud, aka identity theft, is a possibility (see previous blog article for reference).
Credit cards can be good and bad. In other words, people’s financial habits determine whether a credit card is beneficial to them or not. As Putman said, the key to avoid credit card debt is to learn money management skills.
–Yuchen Wu, Student BloggerShare on Facebook