Imagine that you just got your first credit card. Because you have access to funds loaned to you by a credit card company and don’t have to wait for your paycheck to clear, you have decided to buy that jacket you’ve been eying and supplies to start that succulent garden you’ve been dreaming about. In the moment of shiny, plastic glory, not only do you forget about your budget and the monthly expenses that go along with it (like rent, groceries, and gas) but you also fail to take into account your long-term financial goals. If you don’t make enough to pay your credit card balance, then just like that: you fall into the group of students who have credit card debt.
The average credit card debt for college students is $3,280, according to CollegeFinance.com. This is likely because college is expensive, and students have to use their cards to cover purchases like textbooks or even financial emergencies. Consequently, credit cards are just as easily used for nonessential purchases, such as online shopping sprees or fast food breaks, which can rack up a large amount of debt if you aren’t careful. Luckily, there are a few tips that may help you avoid credit card debt in college.
1. Do your research
Once you’ve made the decision to apply for a credit card, there are several things to be aware of. Because credit cards can serve a very important role in your personal finances, you’ll need to educate yourself on how credit cards work, the different types of cards available, and how they can be used responsibly. You’ll also want to understand how credit cards affect your credit score and can help you reach your financial goals in the future, whether that be renting an apartment or buying a car. Doing some credit card research can help you make informed decisions regarding your college finances, while boosting your confidence in your ability to handle money.
2. Create a budget
Once you’ve done your credit homework, then it’s time to put together a budget (if you don’t have one already). If you complete your monthly budget sheet correctly, then you’ll know exactly how much money you’ll have leftover to use as you please, also known as discretionary income. It’s smart to put the money toward your emergency fund or rainy day fund, but if you decide to make nonessential purchases on your credit card, you’ll want to make sure that they don’t total more than your discretionary income for the month. If you give yourself a limit for your spending, then you’ll be less likely to become a victim of credit card debt in college.
3. Eliminate impulse buys
Many students use their credit card for impulse buys, or spur-of-the-moment purchases made without considering their budget. Although it can be fun to click “add to cart” or swipe your card, it’s important to be intentional about your purchases. When you use a credit card, it may not feel like you're spending money. This is because you’re using a plastic card rather than handing over cash. However, the money you are spending is real and has to be paid back in a timely manner. Keeping track of all your purchases can help you know how much you have spent and possibly deter you from spending more money until you are financially able to do so.
4. Always pay your bill on time
You should make an effort to always pay your credit card bill on time. When you happen to miss a payment– no matter if it was on accident or on purpose– you’ll begin to accrue late fees. This can increase your bill, which isn’t helpful if you’re trying to get out of or avoid credit card debt. Plus, your payment history is one of the most important factors in determining your credit score. It only takes one late payment to potentially lower your credit score. On the positive side, regular on-time payments can give you a better chance to be worthy of a credit limit increase. Essentially, if you pay your bills on time you can avoid interest fees, eliminate late fees, and build your credit history without any hassle.
5. Pay more than the minimum payment
A common credit card mistake for the average college student is to only pay the minimum amount due on their monthly credit card statement. Because the minimum amount can be a small fraction of your total monthly credit card balance, it may be enticing to pay only this small amount. However, when you receive your statement, you should aim to pay your balance in full each month, which means you won’t have to pay interest on purchases. Although there will be some months when paying off your statement in its entirety is not possible, always strive to pay more than the minimum. This way, you will be able to pay your full balance in less time, and you’ll pay less in interest charges, which will save you money in the long run.
6. Find more money
This may be easier said than done. However, if you try everything and can’t seem to shake your excessive spending habits, then look for ways to increase your income. You can do this by “finding” more money, such as by utilizing student discounts. You could also make more money by picking up a part-time job or finding a side hustle. Whatever you choose to do to increase your income, it will help you reduce debt. Eventually, if you’re able to curb your spending habits, then you’ll have more money to help grow your savings, invest in your retirement plan, or pay off your student debt.
For college students, credit card debt could be completely avoided by not having a credit card at all. However, not having access to credit can put students at a disadvantage for future events. Without credit, a student may not be approved for loans, could miss the opportunity to rent the apartment they want, or may be stuck with higher interest rates, which could result in more debt later in life. While credit card debt can seem intimidating, mastering your credit only takes discipline and a little practice. Just know that if you follow these tips, you will be on the right track to use your credit card responsibly.
😩Does managing your money have you worried? Read 11 Steps to Avoid Money Stress.
🎓Need the next step? Check out 5 Money Moves to Make Before Graduating College.