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In an article about credit card debt, a person holding a credit card in front of a laptop

Remember: It’s not free money.

The question of whether you should take out credit card debt at university really depends on a lot of factors, including your financial position and knowledge.

While credit cards are useful for building up your credit rating when you leave university, if you misuse them, they can have dangerous consequences.

If you don’t pay off your credit card debt on time, you could rack up huge amounts in added interest and late fees. Your debt could get passed on to a debt collection agency (for example, Link Financial), which will further damage your credit score.

In this article, you can see when credit card debt can be useful at university, and when you should avoid it.

Should you take out credit card debt at university?

You should take out credit card debt at university if you have the cash in your account to pay your card off in full each month, because paying your credit card bills on time will boost your credit rating, helping you apply for important loans like mortgages, and pass employment checks.

However, you should not take out credit card debt at university if you’re using it as an alternative source of income and you can’t pay it back, do not have the funds to pay your credit card bills or you’re already struggling with debt, because not paying your credit card bills on time will negatively affect your credit rating and finances.

Let’s look at how taking out credit card debt at university could either help you or hurt you.

How taking out credit card debt at university could help you

Builds your credit score

A good credit score is extremely important to your future. Do you want to buy or rent your own home one day? Do you want to pass a credit check, so you can get approved for a low-interest business loan, or get that job you’ve always wanted? If so, you need a high credit score. You build your credit score by making repayments in full and on time. Your credit card provider will report your activity to credit bureaus, so making timely, full credit card repayments is a great way to boost your score for the future.

Great for building financial awareness

Managing a credit card, and making all your repayments on time, takes financial awareness and skill. You’re aware of what’s at stake if you don’t pay (potentially expensive interest and a poor credit score), so this can help you keep on top of payments. 22% of Americans don’t have a credit score with the three major credit bureaus, or have a “thin or stale” credit file, potentially because of the lack of understanding around credit ratings. Yet, it is vital to have a good score, so that you can get approved for important loans or even get the job you want.

Consumer protection, and you’re covered for emergencies

One very useful thing about credit cards is that they can protect you from fraud in ways that a debit card or cash can’t. Once someone steals cash from your wallet it’s pretty much gone forever, unless you can magically trace the thief. However, if someone steals your credit card, your credit card company will remove the charges.

Also, a credit card can be very useful in an unexpected emergency. If you have to go to ER or you get stranded somewhere and don’t have the money to travel home, a credit card can get you out of difficulty.

How taking out credit card debt at university could hurt you

Ruin your credit score before you’ve started full-time work

Your credit score is a reflection of how you repay your debts, and if you can’t pay off your credit card bills at university for any reason, your credit score will take a hit. A low credit score can signal financial difficulties and potential untrustworthiness when it comes to borrowing. Most credit cards report whether you pay or don’t pay your debts on time to main credit bureaus, which affects your score accordingly, and if you don’t keep up with repayments, you will likely find it hard to get approved to rent or buy a property, or for other important loans. Potential employers can check your credit score, too, so it could affect whether or not you get a job.

Get into unaffordable debt

Another downside of being unable to repay your credit card bills on time is that it can push you into debt you can’t afford. Ironically, debt (despite being the absence of money), can be very expensive. A credit card provider often adds interest when you don’t pay your debts on time, or only make a minimum repayment, so you could end up with more to pay. Also, only making a minimum repayment (or not making payment at all) on debt makes the debt last longer, accruing more interest. In the end, your debt could get passed on to a debt collection agency, further hurting your credit score. This is why it’s so important to only use your credit card if you have the cash to repay your bills, and to see it as something to build your credit score, not as “free money.”

Affect your family’s finances

If you’ve been included as an authorized user on your parent or guardian’s credit card and you misuse the card, you could end up racking up large debts that Mom or Dad may not be able to pay off. Unfortunately, although credit cards can be useful, they are also prone to abuse. Tempting rewards if you spend a certain amount or the feeling that you can spend excessively on non-essentials and worry about the bill later can push you into excessive credit card debt.

When should you take out credit card debt at university?

You should take out credit card debt at university if:

  • You’re using the credit to build up your credit score, not because you need it to pay for essentials that you can’t otherwise afford. View your credit card as a financial tool, something that is going to add to, not take away from, your future. Your credit card isn’t for you to spend, it’s to help you one day afford an important loan, like a home loan, or to pass an employment check for the job of your dreams.
  • You have enough income or funds to cover the repayments for your credit card every month. It’s no good thinking you “might” be able to pay your credit card bill, you have to be extremely certain, either because you have a secure job alongside your studies, or enough left over in student grants or funds that you have carefully budgeted to put toward credit card bills. This will keep you repaying your credit card balance on time and in full, achieving a good credit score.

When should you not take out credit card debt at university?

You shouldn’t take out credit card debt at university if:

  • You’re using credit to pay for essentials like food and clothing, because you can’t afford them yourself. This is because if you can’t afford essentials as it is, taking out credit is going to be more expensive, because you’ll eventually have to pay off what you owe, plus interest and late charges. See the “federal loans and grants section,” and contact your university to see if you qualify for additional financial support. This isn’t to say you can’t use a credit card to build your credit, but just make sure you’re not using it as your only way to pay for essentials.
  • You are already suffering with debt. Adding other sources of credit when you’re struggling to pay previous debts could simply exacerbate the problem. Also, if you have debts you’re struggling to keep up with, it’s likely that your credit score isn’t as good as it could be. This means that if you get approved for a credit card, it will probably be one with a higher interest, so if you default (fail to pay), it will be more expensive and hurt your finances further.

Should you pay for college tuition with a credit card?

If you or your parent or guardian has the funds to pay your college tuition in cash, you may consider paying with a credit card to access certain rewards. However, it is vital that you only do this if you can pay off the full amount of your tuition as soon as the credit card bill arrives, otherwise you’ll have to pay enormous amounts of interest over time (tuition fees are at least several thousand), if you can pay the bill at all. Some credit cards offer significant rewards for signing up or spending a certain amount of money. For example, Chase Sapphire Preferred Card offers you 60,000 points, which you can redeem as $750, when you spend $4,000 on purchases. So, if you already have the money for tuition sitting in your bank, it makes sense to pay college tuition with a credit card and earn some extra rewards.

However, you should never pay for college tuition with a credit card if you’re doing this because you can’t afford your tuition yourself. This is because college tuition is very expensive (on average, $32,410 a year for private schools), and if you can’t pay this off when your credit card bills come, you could go into serious debt, which could make your future much more difficult, not to mention that you’ll end up paying more than you would have because of added interest or charges on small or non-repayments.

If you can’t afford college tuition, here are some options to consider:

Federal loans and grants

The government offers both federal grants (money you don’t have to pay back) and federal loans (money you’ll have to pay back) to contribute toward the cost of your college education if you require financial aid. There are lots of factors that the U.S. government considers when calculating eligibility for federal loans and grants, including your family’s income and how many children your parents have in college. You’ll need to fill in the Free Application for Federal Student Aid (FAFSA) form, so your university can decide how much financial need you have. Federal grants include

  • Federal Pell Grants: The grant amount for Federal Pell Grants can change yearly, but the maximum Federal Pell Grant award is $6,345 for 2021. These grants are usually awarded to undergraduates who show they have exceptional financial need.
  • Federal Supplemental Educational Opportunity Grants (FSEOG): The FSEOG program is available to participating schools, so make sure you check whether your chosen college participates. You’ll get between $100 and $4,000 depending on how much other aid you get, and your financial eligibility.
  • Iraq and Afghanistan Service Grants: You may be eligible for the Iraq and Afghanistan Service grant if you’re not eligible for the Federal Pell Grant because of Expected Family Contribution, but you do meet the remaining Federal Grant Eligibility criteria, and your parent or guardian was a member of U.S. armed forces and died as a result of military service in Iraq or Afghanistan after 9/11, and you were under 24 years old and enrolled in college at least part time when your parent or guardian died.
  • Teacher Education Assistance for College and Higher Education (TEACH) Grants. A TEACH Grant helps you pay for your college education if you plan to become a teacher in a low-income area with high needs. To qualify, you have to agree to teach for a certain length of time, otherwise your grant will turn into a loan that you have to repay. You also have to meet the eligibility criteria for federal student aid. You’ll receive a maximum of $3,772.

Federal loans include;

  • Direct Subsidized Loans. These are based on financial need, and help you cover the costs of higher education at a college or career school.
  • Direct Unsubsidized Loans. These are loans made to eligible students, but not based on financial need.
  • Direct PLUS Loans. These are made to graduate and professional students, as well as the parents of dependent undergraduate students, to go toward education expenses not covered by financial aid. You don’t need to qualify based on education requirements, but you will get credit checked. You may have to meet other requirements to qualify if you have a poor or non-existent credit rating.

State loans and grants

You may also be able to access financial support or loans from your state. States often work with universities to provide financial assistance for students who are eligible. Make sure you fill in the FAFSA form, as most states will use this to calculate your eligibility for state support.

Work-Study

Federal Work-Study is a program that offers part-time jobs for students with financial need (which is the difference between the cost of attending your university and the Expected Family Contribution you’ll receive). Work-Study allows you to work part-time and earn money to put toward your college expenses, while continuing with your college program. You can only work a certain amount of hours, and these can’t exceed your total Federal Work Study Award. Your job could be either on-campus or off-campus, but if it’s off-campus, the work you perform must be in the public interest, for example, with a private nonprofit organization or public agency.

Make sure you also contact your university or school, to see what financial aid or scholarships they offer.

What are my credit card options as a student?

You have to be at least 18 to apply for a credit card, and if you’re under 21, you’ll need an independent income source to qualify (this could include a regular allowance from your parent or guardian, though), or find a card that allows a co-signer. You generally have three options for credit cards when you’re a university student, and you need to build your credit history. These are:

  • Student credit cards: A student credit card is specifically designed for college and university students. They give you the chance to build a good credit score, so that you can pass credit checks for renting or other important loans when you start your working life. The student credit card you choose should report actively to the main credit agencies — TransUnion, Equifax and Experian — so you can build your score. Student credit cards usually have a lower credit limit than regular credit cards. For example, the Discover it Student Chrome credit card has a starting credit limit of $500, whereas a regular credit card like Chase Freedom Unlimited can get you $5,000 starting credit, if you’re creditworthy enough. However, once you build your credit score with a student credit card, your credit limit is likely to increase. Student credit cards often offer student-friendly rewards for using them, such as credit balance reductions if you keep your GPA at 3.0 or above.
  • Secured credit cards: A secured credit card is another good option if you already have bad credit as a student, or can’t access a student credit card for any reason. While most credit cards are unsecured, which means you don’t have to put down any money as collateral against you borrowing money, secured credit cards require you to put down a deposit. This is because if you have no credit history or a poor credit history, lenders have no way of assessing whether you’ll pay your credit card bills on time or not (this is why people with good credit history usually have better access to unsecured cards). When you start using a secured credit card, the deposit you put down usually determines the amount of credit you’re allowed. So, if you put down $200 as a security deposit, you’ll get $200 credit. If you then default on (fail to pay) your bills, the credit card company uses your deposit to pay off your bills. If you repay everything in full and on time (which you’ll need to do if you want a good credit report), you’ll be refunded your deposit in full when you close the account. Because secured credit cards are generally for people with a poorer credit history, they have higher interest rates than regular credit cards, so just make sure you pay in full every time to avoid this.
  • Becoming an Authorized User on someone else’s card. You can also build your credit score as a student by becoming an authorized user on someone else’s credit card account. For example, if you have a parent, guardian or sibling with a stellar credit record, you can become a secondary account holder on their card and build your credit this way. You can make purchases but you’re not ultimately responsible for payment (which lies with the primary cardholder), so it’s important that both you and the primary account holder have a good understanding of what you’ll spend or not spend on it, and whether you’ll reimburse them for the money you spend on the card. You don’t have to spend anything at all, as your credit score will still be boosted by the primary account holder’s good credit history.

 

What type of credit cards should I take out at university?

Best Student Credit Cards

Discover it Student Chrome

Discover it Student Chrome is a very good choice as a student credit card, because it offers multiple, student-friendly rewards, as well as a 0% Annual Percentage Rate (APR) — this is the rate you’ll pay in interest, if you don’t make your payments in full and on time — for six months.

However, make sure you can afford the bills for anything you purchase within the 0% APR period, or you’ll end up with an even bigger bill.

After the 0% period, the standard APR will be 12.99% – 21.99% depending on how good your credit is.

If you haven’t built up enough of a credit history, you might find yourself at the higher end of the APR scale, but this shouldn’t be a problem if you pay everything back in full and on time.

Discover it Student Chrome, doesn’t charge any annual fees, which is also good.

For a cash advance (which is when you use your credit card to withdraw money from the bank, and pay the bill for this later), you’ll have to pay either $10 or 5% of the amount of each cash withdrawal using your credit card, whichever is greater.

Discover it Student Chrome is a great motivator for performing well in college.

They offer $20 statement credit (money deducted from your card balance, reducing the amount of money you owe), each school year your GPA is 3.0 or higher, for up to the next five years.

You can also earn 2% cash back at gas stations and restaurants on up to $1000 in combined purchases each quarter. You’ll also earn unlimited 1% cash back on all other purchases automatically.

You’ll get an unlimited cash back match, which means that Discover automatically matches the cash you’ve earned back at the end of your first year.

So if you got $50 cash back, you could end up with $100 in cash. However, be very careful that you’re not spending more just to try and get the cash-back rewards, as this won’t be cost efficient.

 

Deserve EDU Mastercard for Students

Deserve EDU Mastercard for Students is a particularly useful credit card if you’re an international student studying in the U.S. It has no annual fees, and you’ll earn unlimited 1% cash back on all purchases.

You can get approved for this card with no credit history, and you don’t need a Social Security number, which is good for international students.

This credit card has a fairly high APR of 18.74%, although this shouldn’t be an issue if you pay your bill in full and on time.

You should never make purchases with a credit card that you aren’t sure you can pay back in full, as the point of having a student credit card is to build up your credit history for when you graduate.

With Deserve Edu Mastercard for Students, you’ll receive one year of Amazon Prime Student, if you spend $500 in the first three billing cycles. Just make sure that you actually need to spend $500 before you do it, as it’s a lot cheaper to just buy an Amazon prime subscription!

Best secured credit cards

OpenSky Secured Credit Visa Card

OpenSky Secured Credit Visa Card is a very good card for building up your credit history as a student, as long as you’re sure you can pay off the balance in time.

With this credit card, you can pick your own credit limit, depending on the amount you put down as a deposit. If you put down $300, you’ll have $300 to spend as credit. If you spend $1000, you have $1000 to spend as credit. This is very useful, as you’re not limited to a certain number (as long as it’s not over the limit of $3000).

If you don’t pay your balance, OpenSky will keep your deposit. But otherwise, you’ll get this back in full within 10 weeks of closing your account, although you might want to keep it open to continue building good credit by making full and regular repayments.

OpenSky doesn’t do a credit check, which is particularly useful if you’re a student and you haven’t built up your credit score but need the chance to do so.

However, this card does have a $35 annual fee for customers, and a fairly high APR rate of 17.39%. There are also late fees of up to $38 if you miss payments, and you’ll have to pay 5% of each cash advance (which is when you use your credit card to take out money from the bank) and foreign transaction.

However, as long as you pay off your balance regularly and in full, you shouldn’t incur these high interest charges. It’s also better to avoid using your credit card for a cash advance, given that 5% fee. In fact, the need to do this might suggest that you don’t have enough on your debit card, which is an issue in itself, as you should only use your credit card for purchases or credit that you have the funds to repay, otherwise you could get into serious debt.

Capital One Secured Mastercard

Capital One Secured Mastercard is a great option if you don’t have much credit history to speak of. The recommended credit score for this card starts as low as 300.

With this secured credit card, you’ll have to put down $49 to $200 as a deposit, and you’ll get $200 credit as a minimum. If you put in a higher deposit, you can get more credit, up to the maximum limit of $1000.

One of the good things about this card is that you’ll be automatically considered for a higher credit line after six months without having to lay down an additional deposit.

However, the APR on this card is 26.99%, which is very high for a credit card. You must be adamant that you can make your repayments on time, or you’ll end up with a very high bill (not to mention, damage to your credit score). You’ll also have to pay the same rate for a cash advance.

If you’re late with your payments, you’ll be charged up to $40 as a penalty fee, as well as having to pay interest on what you owe.

Five steps to deal with credit card debt

If you do find yourself struggling with credit card debt, you’re not alone. An extraordinary 50.8% of students who completed some college (and 41.3% with a college degree) hold credit card debt. Here are some steps to dealing with credit card debt.

Make a budget

While you might have a vague knowledge of the money in your bank account and what is owed, creating a very careful budget can help you save money in unexpected ways.

As soon as you start pinpointing what exactly is an essential and non-essential expense, you’ll find you have more to put toward your credit card debts.

A great way to budget is the three accounts system. Developed by the UK charity Christians Against Poverty, it helps you separate your money into three accounts, and keep you from accidentally overspending. One account is for all your standing orders and direct debits — for example, your home loans or rent, household bills and credit card repayments — one is your weekly spending account, and one is for your savings.

Work out your exact income (that is, however much you have coming in from student jobs, allowances and government grants). Then, work out how much your essential direct debits and standing orders amount to, and place those in the first account. Then, work out how much you need for essential spending such as your groceries, as well as a couple of treats, and place the amount in your weekly spending account. Whatever is left over you can save or put toward clearing your credit cards faster.

Look at what you’re spending on non-essentials, for example, eating out and entertainment, and see what money you can save toward clearing your credit card debts. It’s good to enjoy a treat, because this is likely to help you stick to your budget if you don’t feel completely restricted, but try making swaps, such as recreating your favorite takeaway at home.

Try the “debt snowball” method

Struggling with debt is a psychological, as well as financial, issue. When you’re overwhelmed with what feels like huge amounts to pay off, it’s hard to find the motivation to get debt free.

What you need is a high from paying off debt, much like the momentary high you get when you buy something, except unlike the high you get from spending money, the rush from paying off debt stays with your forever.

The debt snowball method is a great way to keep up your desire to pay off debt. What you do is focus on paying off your smallest debt first, while making the minimum payments on all your other debts. This way you get the rush of paying off your debt faster, and once you’ve paid your smallest debt, you move onto your next smallest, until finally, you’ve paid off all your loans.

You can also consider the debt avalanche method, which is when you clear your debt with the highest interest first, saving yourself money in the long run.

Increase your income

As well as cutting down on your expenses, getting more money is another good way to get rid of your debt faster.

Once you start slashing those balances, there’s nothing more motivating than seeing your debt go down through sheer hard work.

Do you have the capacity for extra work? Can you pick up some tutoring or freelancing alongside your studies, or a few hours in a cafe or grocery store? If you can, do it. Start to kill off the debt that’s making your life miserable, rather than burying your head in the sand.

A debt-free future is entirely possible, and you’ll feel so good when you finally achieve it.

Consider debt consolidation

Debt consolidation is when you take multiple, high-interest debts (for example, outstanding balances on different credit cards) and take out a loan with low interest and better terms, to pay them off. Then, you’re left with a much lower interest loan to pay off, and you can do so in one, simple monthly payment, rather than worrying about multiple debts.

If you have a lot of credit card debt, you can consider a 0% balance transfer credit card.

A balance transfer card transfers all the outstanding balances on your cards into one, 0% interest credit card, which means you won’t have to worry about paying off interest for a time. This can help you get your finances under control and save you money, as you work through your debt.

However, you should not consider consolidating your debt unless you’re approved for a 0% interest card, or at least a credit card with less interest than the combined interest on your original credit card debts, as this defeats the purpose of debt consolidation, which is to cut down on the interest you have to pay.

If you’re a student without much of a credit rating, or your credit rating is poor (which may well be the case if you can’t repay your debts), you may find it hard to get approved for a 0% card.

You should also watch out for any fees for balance transfers, as some credit cards do charge these — if these cancel out the benefits of consolidating credit card debt, don’t bother to do it.

You may also end up paying more in the long run with a debt consolidation loan, because even though your monthly payments will be smaller, you’ll probably be paying them off over a longer period of time.

Get on a debt management plan

If you’re struggling to pay back your debts each month, see if you can get on a debt management plan through a nonprofit credit counseling agency.

Never pay to have your debt “managed” by so-called debt relief companies, who often want to make a profit out of your difficulties, and will charge fees, which you may not be able to afford.

Unlike debt relief companies, credit counseling nonprofit companies are designed to support people struggling with debt.

With a debt management plan, you could get reduced interest rates, as well as late payment charges and other fees canceled.

Rather than the hassle of paying all your different creditors, you’ll make a single payment each month to your credit counseling agency, who will distribute this fairly among your creditors.

A good tip to make sure you pick a safe credit counseling agency, is to choose one that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America.

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