Visit almost any college campus this September and you will see them mixed in among the various booths and stands on the quad: credit card company sales booths. Reps entice students with offers of low-interest rates and free giveaways. However, many college students, especially those in their first year, don’t fully understand how credit and credit cards work and can easily find themselves in hot water.
Before your college student heads off to school this year, you may want to have a conversation with him or her about using credit wisely. Here, some topics to help you start the credit conversation with your college student.
Credit Cards May Help you Build Your Credit An oft-repeated mantra is that credit cards can help you build your credit. This is true – but if they are mismanaged, they can also damage your credit. Remind your student of the importance of not exceeding their credit limit and of paying their bill in a timely fashion. Penalties and additional fees often apply to both of these situations and students can quickly get into trouble that will follow them long after graduation.
Beware the Fine Print
Students who understand what an interest rate is will no doubt be impressed by the 0% APR, which often accompanies credit card offers for the first year. However, it is worth reminding your student that today’s 0% can easily become tomorrow’s 22%. Students should either pay off their balance before the year mark or factor payments plus interest into their monthly budget.
Pay More than the Minimum Paying the minimum balance on time is really the minimum of what you should be doing if you have a credit card. Many students don’t yet understand that paying only the minimum ensures that their credit card balance will linger for the maximum amount of time.
While there may be months when it just isn’t possible for your student to pay more than the minimum, try to underscore the value of paying more than the minimum as frequently as possible. Check out this credit card payoff calculator (http://www.bankrate.com/calculators/credit-cards/credit-card-minimum-payment.aspx) for a quick exercise in paying down a credit card balance.
Cash vs. Credit
When to use cash and when to use credit is a hotly debated personal finance topic. During this conversation, spend some time talking with your student about your personal thoughts on this issue. How do you decide when to pay in cash and when to pay in credit?
Some consumers have strict rules, for example, only paying for groceries or restaurant bills in cash (or debit). Ultimately, your student will have to come to his or her own conclusions about this, but underscoring that there is a decision to be made between cash or credit will help develop responsible credit and spending habits.
Monitoring the Account
Sure, your college student is technically an adult, but that doesn’t mean that he or she necessarily has developed all of the skills needed to manage credit responsibly. It is wise to have a conversation about the level of oversight that you, the parent, expect to have over credit card accounts that your student opens during school. Some parents want to have nothing to do with their child’s accounts, while others want to have the ability to monitor the account to ensure that nothing is amiss. (If the credit card is in your name or tied to any of your bank accounts, you may feel strongly that you should be kept in the loop on all account business.) Discuss your expectations and plans with your student on this topic to head off confusion and accusations of meddling down the road.
Your college student will have a lot on their mind this year, but hopefully, worrying about credit card debt won’t be one of them. Time spent today with your student discussing your thoughts on credit and the strategies that you use to keep yourself out of hot water can help forestall trouble down the road.
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