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Understanding the Dangers and Benefits of Credit Cards

Credit cards: convenience or crutch? Know how to use yours to your benefit--and not your financial undoing.

Carrying a credit card can be a definite power trip in college.

You can be sitting at a table with two or three friends and when the check comes, everyone reaches into their pockets like they’re about to get electrocuted. Meanwhile, you pull out your credit card and utter three magic words: “I got it.”

Just like that, you’re a star. Every eye at the table is admiring you, and it’s a heady feeling because college kids aren’t supposed to have that kind of clout.

Then, some time in the not-so-distant future, along comes the credit card bill, and the memory from the restaurant is now a haunting one. You compare the balance due on the card with the balance in your bank account and suddenly realize what you should have said that night: “I don’t got it.”

Welcome to the two-sided torment that is credit card usage.

On one side, there are positives:

  • They are convenient.
  • It’s safer than carrying cash.
  • You’re covered in an emergency.
  • You have a record of all your purchases.
  • If you pay off the balance every month, they help you build a good credit score.

And on the other, there are negatives:

  • They are too convenient.
  • It’s hard to remember how much you spend until you receive a bill at the end of the month.
  • They can damage your credit score if you don’t pay them off every month.

The truth is that credit cards can be an important asset for college students, especially those who have gone away to school. The real issue at hand is the same as it is for anyone else carrying a credit card: can you use it responsibly?

A 2012 survey by the International Journal of Business and Social Science found that 86% of college students had at least one credit card and 50% had four or more. The average debt was $4,100. That’s a significant number and an amount that can be truly limiting, especially as recent grads tumble into less-than-robust job markets and entry-level jobs with relatively low pay.

The 2009 CARD act requires students under 21 to show they are capable of paying for a credit card on their own or have a creditworthy co-signer. That typically is a parent, who can set rules on when and where to use the card, place a credit limit on it ($500 is a good starting point), and demand that the balance is paid off every month.

If all the rules are followed, the student is on their way to responsible use of credit. If not? The survey says a ton of debt is waiting. It's incredibly helpful—and sometimes, necessary—to maintain a healthy credit score. Using a credit card responsibly is a great means toward that end. But it takes precious little to mar that record, such as a single late payment, and you can undo years of careful planning with just one or two financial missteps. That's why it's essential to know your finances, to know how to use your credit card effectively, to know why these things matter in the first place.

Life after college is tough enough. You don’t want to carry debt of $4,100 or anything close to that into the next phase of life. It can destroy your credit score and make it difficult to get car loans or home loans after graduation.

Just be sure when you pull out your card, you’ve got enough in your bank account to cover whatever you’re about to charge.

In other words, when the check comes and you say, “I’ve got it,” be sure you’ve got it.

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