So I signed up, like I'm sure hundred of students did that day. Now, a few years later, I sit and wonder how many of those students got their cards and put a balance on them right away. What I'm even more curious about is how many of them still have a balance on that card.
Welcome to the financial jungle.
Credit card companies are approaching marketing like the tobacco companies did back in the 60's: get 'em hooked while they're young. Young adults are inundated with credit card offers from every which direction. Usually it even seems like a good idea to sign up for one or two. It doesn't cost anything, you get a free gift, you'll have the card for "emergencies" and it will help you establish a credit history. On the surface these seem like good reasons, but lets examine them further.
It Doesn't Cost Anything
Baloney. If it didn't cost anything then the credit card companies wouldn't be in business. The cards offered to college-aged adults usually come with a sky-high interest rate and so many hidden fees that just trying to pay off one month's worth of use on the card can turn into a year-long debacle.
You'll Have It For Emergencies
Well, it will be there in emergencies. This is true. But it will also be there the night you're down at the Mini-Mart and you're out of check blanks or when you're at the bookstore and your check-out amount is more than you have in your checking account. Its always there looking suspiciously like free money, so you use it a few times. Then you notice that since you used your credit card your checking account balance is a lot higher than it normally is this time of the month so you may as well treat yourself to a night out on the town. Then the statement comes and as you look at your charges you see that the minimum monthly payment is only $20.00, why not just pay that? Well you're in the vicious cycle now because your balance is now eligible for interest. If you continue this trend over the next few months you'll find yourself with a nice little balance that will never, ever seem to shrink. Think this can't possibly happen to you? This can happen to anybody. I've seen it.
It'll Establish A Credit History
This one is the biggest doozie of them all. How important do you think a credit history is when they're already offering you credit without one? Plus, just about anything establishes a credit history so just be sure to pay your cell phone bill on time and keep up on your student loan payments. That should be more than enough.
The Free Gift
This is like accepting drink vouchers in a casino...they just want to get you in the door.
Very few people take advice like this seriously. They sign up for their cards and then end up with a balance that they pay on as though it were some kind of a right of passage. It needs to stop, but the problem is that it can be very hard to get started without some sort of credit. So while credit cards can be dangerous they're almost necessary. Very few people, especially college students, can afford the day-to-day necessities without putting a little bit of it on credit.
That being said, there are some things we need to do to make sure that not too many fall into the debt trap. We need to stop allowing them on campus where they can take advantage of students and we need to educate the inexperienced so that they know the consequences of poor credit.
Hundreds of people commit suicide every year because of financial woes and they play a large part in most divorces. Once you fall behind its almost impossible to catch back up without outside help. If you're late one month they're just going to charge you a late fee, the last month's balance and this month's balance. If it goes much further you'll begin getting calls from the bill collectors and no matter how polite they are on the phone it will feel like they are accusing of a crime. They'll even call you at work unless you specifically ask them not to. It soon becomes a downward spiral ending only when you either declare bankruptcy or find some help from another source.
So when you're looking at that credit card in the Mini-Mart remember this article and if you do use it, pay the balance off as soon as you can.
You'll be better off.