Undergraduates whose parents argue about money are twice as likely to own several credit cards than those who say their parents do not argue about their finances. Perhaps unsurprisingly, those with more cards are also likely to be in more debt.
In their study of over 400 students, Adam Hancock and colleagues from the East Carolina University also found that female students were more than twice as likely to own two or more credit cards than their male counterparts. The study was recently published in the Journal of Family and Economic Issue.
The study follows another piece of research, conducted by the Money Advice Service, an independent service set up by the UK government, which found that first year students expect to graduate with debts of more than £39,000 ($63,000). What is more, of almost 1,500 students surveyed, more than one in ten of them have credit cards.
With the cost of fees increasing in the UK, it’s clear that the issue is going to get even bigger. Many students see credit cards as a low commitment way to get their hands on easy cash. But what can start off as a card ‘just for emergencies’ can end up hitting your wallet harder than expected. Plus, that available credit can fuel the temptation to spend beyond your budget. In actual fact, credit cards are often not the smartest option, especially as a student when you may be eligible for interest-free or low-interest bank loans (see the table below).
Of course, used in the right way, credit cards might well be a neccessity, getting you through your student days and making sure you can pay for essentials that crop up, like unexpected field trips or conferences which could really be worth the money.
We asked Jane Symonds of the Money Advice Service for her tips on how to make the most of your options, whilst avoiding the biggest pitfalls of credit card debt. If your parents are the type to argue about their finances, following these tips might just help you break the cycle!
1 Before you borrow take a close look at the interest rate, and with credit cards check the APR (Annual Percentage Rate). The higher the interest rate, the more your loan is going to cost you. The higher the APR, the worse for your pocket, unless you can pay off the balance in full every month.
2 Always review the different ways of borrowing money if you must borrow. As well as all the usual credit options – credit cards and bank loans – there are special long-term loans to help you with your studies and your career. Visit the Money Advice Service’s website to see all types. The main options are shown in the table below (click on the table to enlarge).
3 Stick within your credit limit. If you go over your agreed credit limit on your credit card, you will also have to pay a charge. Ensure you know how much money is left on your credit card each month by getting into the habit of checking your balance.
4 Don’t withdraw cash using your credit card. You’re often charged a percentage fee with a minimum level plus interest from the day you make the withdrawal, whereas credit card spending usually has an interest-free period. (If you’re having problems paying your bills, talk to the companies and tell them your situation).
5 Beware of credit card fees when you pay for things. These fees can increase the purchase cost considerably. Often the fee is only revealed during the closing stage of the payment process, for instance when buying flights/gig tickets online.
6 For small purchases, consider using a debit card instead – you’ll avoid paying credit card fees. But for larger items (over around £100/$150) do bear in mind credit cards give you protection if there is a problem with your purchase.
7 Avoid late payment charges. Make sure you never miss a payment by setting up a Direct Debit to your credit card company. If you miss a payment you will usually have to pay a late payment charge. This can also affect your credit score, meaning it could be harder to borrow money in the future.
8 Don’t use store cards unless you can pay the money back straight away. They may sound appealing at the till, but they charge very high interest on debts. If you must borrow, always review the other borrowing options available to you, it could be that another option – for instance an overdraft facility – is a more cost effective than a store card.
9 Only use credit cards for emergency, short-term borrowing needs. Using credit cards to pay for your day-to-day purchases can lead to more serious financial difficulty if you cannot make the repayments. Review your finances if you are in this situation, putting more on your credit card will make the situation worse.
10 Make at least the minimum repayment every month (even if you have a 0% deal on your credit card) otherwise you will pay penalties and lose your 0% deal.