As our kids go off to college they will be experiencing many new and exciting things. One of them will be making a lot of decisions on their own. Unfortunately, they will also be the fresh, new target for many credit card companies who will ask them to choose their credit services. College students are a clean slate. They usually don’t have any established credit which means they don’t have bad credit…just no credit.
When it comes to finances, there are some lessons college students should brush up on so that they don’t learn things the hard way. The best thing to do is to talk to your kids about what credit debt, interest and fees can actually mean for their financial future. Here are a few basics to review, let’s call it Credit Cards 101.
1) It’s important to beware of the hard hitting sales pitches and gifts offered by some credit card companies. It’s this enticement that leads many kids to sign on the dotted line. Let them know it’s not worth a beach tote with their school logo or a cool backpack to sign up for a credit card. Students need to think about the responsibilities that come along with receiving credit.
2) Review what annual fees, interest, over-the-limit fees and penalties can cost them. Suddenly that tote isn’t as appealing when it can end up costing money even if they don’t use the card. It’s important to realize that there are costs involved with owning the card.
3) Gaining an understanding of the credit approval process will help prevent overspending. As an example, explain how there are times they will purchase something and the charge is approved even though the purchase puts a student over their credit limit. Thus, an over the limit fee is applied. Some kids learn this the hard way when they go to pay the bill and a $30 meal costs $60 because an over the limit fee was applied.
4) Monthly payments will cost them money. Helping kids to understand that that $200 in debt with a monthly minimum payment may actually end up costing them $300 will make an impact on how they use their cards. Create a spread sheet to show them just how long it will take to pay off their debt and what it will cost them in the end. Stress the importance of paying them off in full every cycle.
5) Being strapped for cash isn’t a reason to take a cash advance from your credit card. It’s important to know that these advances are usually at a higher interest rate than regular charges.
6) Some credit card companies can change their terms and conditions at any time, so beware of those long inserts that come with the bill. Even if bills are paid on time, changes can be made to fees, interest rates and other terms.
7) No interest rates for an extended period isn’t always a good idea unless you can pay it off. It’s too easy to accumulate debt and before you know it, you have a high balance due and your zero interest period is over. Plus, on some cards if you are late for one payment, the interest you would have been charged is tacked on. Know the rules and conditions.
Establishing good credit at a young age can work to a consumer’s advantage. A history of excellent credit and on-time payments can help when students graduate and want to rent a place of their own or buy a car. But the reverse can hurt students and take years to clear up. It can be all too easy to fall behind on payments and stack up fees.