Tuesday, March 06, 2007

Student Credit Cards: Benefits and Dangers

Every year, college freshman are bombared with offers for student credit cards. Parents need to talk about in talking about the responsibilities that go with having a credit card, before their son or daughter goes off to college.

I'm not suggesting that it's a bad idea for college students to have their own credit card. Actually, it has many benefits, but it is essential that they get the right card and use it carefully and prudently.

The benefits of a student credit card are clear. Parents won't need to be continually sending money and students will be able to make normal purchases more easily. They will also be prepared for unforseen "emergencies." Moreover, since most credit cards have a preset spending limit, parents can be sure that spending will remain within a pretermined amount. Parents should remember to request a relatively low spending limit, since credit card companies are often too liberal in the spending limits they assign to student credit cards.

Parents may wish to have the student credit card used only for emergencies. In that case, this must be made quite clear to the student.

Some credit card companies offer very low "teaser" rates in the beginning for a limited period of time and then jack up the interest rate to an exhorbitant level afterward. Always check out the interest rate that will apply after the introductory period.

Another pitfall to avoid is paying only the minimum payment each month. Often, the minimum payment only covers the interest for that month, and little or no money goes toward paying the principal. In that case, it may take decades to pay off the balance. In fact, if no money goes toward the principal, the balance will never be paid off!

Many credit card companies offer the ability to manage the account online. This is a very convenient feature. Students can check their balance or make payments from their checking account 24/7.

This feature also allows parents to monitor the account, even from thousands of miles away. This level of accountability adds an extra margin of safety and reduces the chances that the student will get into trouble by over-using the credit card.


Post a Comment

<< Home