How to Avoid Credit Card Debt in College

Imagine you just received your first credit card, and you now have access to funds lent to you by a credit card company. Because you don’t have to wait for your paycheck to clear, you excitedly purchase that jacket you’ve been eying. While you’re at it, you also get the supplies to create a succulent garden. In a moment of shiny, plastic glory, you completely forget about your budget and regular monthly expenses. Later, you receive your credit card bill, and it’s higher than you anticipated. If you don’t make enough to pay your balance, you’ll quickly find yourself in the group of students facing credit card debt. 

On average, college students have $3,280 worth of credit card debt. Higher education is expensive, and many students rely on their cards to cover essentials, like textbooks or transportation. Yet, credit cards can just as easily be used for online shopping sprees or frequent fast food trips. Both necessary and unnecessary purchases can add up quickly 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

Credit cards can serve an important role in your personal finances. Before you apply for one, there are several factors to consider. You’ll need to educate yourself on how credit cards work and how they differ from debit cards. Additionally, you’ll want to learn about the various types of credit cards, such as secured cards vs. student credit cards. You’ll also need to consider the different features, such as annual percentage rates (APR) and balance transfer fees. Learning more about credit cards can help boost your confidence in your money management abilities. If you use your credit card wisely, it can help you achieve your future financial goals, like renting an apartment or buying a car. But for now, doing some credit card research can empower you to make informed decisions regarding your college finances. 

2. Create a budget

Once you’ve found the best credit card account for your needs, it’s time to create a budget. Correctly filling out your monthly budget sheet will let you know exactly how much discretionary income you’ll have to spend as you wish. If there is money leftover after covering your bills and necessities, it’s smart to put it towards savings. However, if you decide to make nonessential purchases using your credit card, you’ll want to make sure that these expenses don’t exceed your discretionary income for the month. Setting a spending limit will reduce the risk of becoming a victim of credit card debt during your college years.

3. Eliminate impulse buys

Many students use their credit card for impulse buys, or spontaneous purchases made without considering their budget. Although it can be fun to click “add to cart” or swipe your card, being intentional about your purchases is important. Using a credit card can create a false sense of detachment from actual spending since you’re using plastic rather than handing over cash. However, the money you are spending is real and has to be paid back in a timely manner. Unlike with a debit card, the funds for a credit card purchase are not immediately withdrawn from your bank account. Keeping track of your purchases can help you monitor your spending between statements and discourage you from spending too much impulsively. 

4. Always pay your bill on time

You should make an effort to always pay your statement on time. Missing a credit card payment, whether it was on accident or on purpose, can lead to accumulating interest and/or late fees. These additional charges can raise your bill, which isn’t helpful if you’re trying to stay out of 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 increase your chances of qualifying for a credit limit increase. To make paying your bill easier, you can set up automatic payments. This way, your payment will be deducted automatically from your bank account, which will help you build your credit history without any hassle.

5. Pay more than the minimum payment

A common financial mistake is only paying the minimum amount due on your monthly credit card statement. Since the minimum payment is typically a small portion of your overall balance, it can be tempting to settle for this lesser amount. However, when you receive your bill, you should aim to pay your statement balance in full each month by the due date. By doing so, you can avoid accruing interest on purchases. There may be some months when paying off your entire statement is not possible, and that’s okay. Just try to pay as much as you’re able to over the required minimum payment. This approach will help you clear your credit card balance more quickly and reduce the amount of interest you pay, ultimately saving you money in the long run.

6. Find more money

If you have tried 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 or by cutting back expenses. 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 reach your financial goals. Finding more money as a college student can allow you to 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.