Very soon the credit card purchases you made this past holiday season will appear on your statement. Ouch! Student success depends on smart money matters, but credit cards are a temptation that could lead to bad spending habits at the least and a devastated credit rating at the worst. Here are some college tips for managing credit card debt.
How to reduce credit card spending
Using a credit card is so easy. It’s plastic money that lets you buy now and pay later. So tempting. Unless you look at the receipt, you might not even know how much you’re actually spending. But take a step back and pay attention. Make a list of what you’ve spent in one day, add it up, then ask yourself: Can I sustain this amount of daily spending?
Create your own personal finance system. Choose a budgeting system that organizes and categorizes your spending for you so you can see what your money is actually going toward. Quinn Winters suggests in “Trends College Students Should Jump on Today” on CollegeXpress.com: “Students should look into financial services like Mint to track and manage money. Take this time to monitor what you spend and pay back everything in a timely manner. It builds good habits and an even better credit history.”
Tips for smart credit card or debit card shopping
As soon as a credit card bill comes in, pay it off so you don’t incur interest charges. As soon as a bill comes in, pay it. You don’t want to forget it and be charged a late payment fee.
Worcester State College in Massachusetts offers some Debt Management for Students tips:
- Avoid making bad financial decisions that you will have to live with later on.
- Don’t feel alone if it seems like there is never enough money to make ends meet. It happens to almost everyone at one time or another.
- Develop a spending plan before you begin shopping. Determine a dollar amount both appropriate and affordable to spend on each item.
- Try to pay with cash whenever possible or use layaway if available.
- Keep all copies of utility bills, etc. to help in making an accurate budget.
- If you have a summer job, work overtime or get another part time job and pay off your credit card debt.
Here are some more tips:
• Don’t buy it right now. If you see something you like, leave the store, and wait a few days. Do you still have to have it? Probably not.
• Unsubscribe from emails and flash-sale sites that constantly tempt you with cool things to buy.
• Remove your credit card information from your favorite shopping sites. It’s too easy to just click and buy.
• Take note of your interest rate. An interest rate of 11% is considered average. Some charge a lot more. Some store credit cards charge an astronomical 26%.
Did you know you can negotiate your credit card interest rate? If you have good credit and never made a late payment, you can call the customer service number and ask for a lower interest rate. It’s not guaranteed, but you can try.
Colleges and credit cards
Why would a credit card company give credit to undergraduates with no jobs, no verifiable income and no credit history? So they can charge fees and interest. Why do colleges allow this on their campuses? Because they often get a payment of $5-10 for each card that is signed up as a kickback royalty on all retail purchases made by current students using the card, and a royalty made by alumni. One college in Pennsylvania earned $2.7 million in credit card fees and royalties in 2011. The Credit Card Accountability Responsibility and Disclosure Act of 2009 is halting some of these practices and making all transactions more transparent.
“Students and their families should know if their school, whether well-intentioned or not, is being compensated to encourage students to use a specific account or card product,” said Richard Cordray, in an official statement from the Consumer Financial Protection Bureau, “Penn State leads U.S. in earnings from collected credit card royalties,” by Tim Grant posted January 11, 2014 in the Pittsburgh Post-Gazette. “When financial institutions secretly give kickbacks to schools, they are engaging in risky practices.”
What are your tips for reducing credit card debt?