The following is a guest post by Kevin Fleming. Kevin runs CreditShout, a personal finance blog dedicated to educating people on how to manage their finances and save money with credit cards.
Credit card companies have come under fire for targeting college students. Everyone from The U.S. Public Interest Research Group (report in PDF format) to Newsweek and Fortune have lamented the aggressive marketing tactics that colleges use to try to lure teens in. However, while these student cards may be bad news for some students, if you know how to use them wisely, you can beat creditors at their own game and come out of college ahead.
Beat The Credit Card Company At Their Own Games
There are two steps to beating the credit card companies and coming out ahead of the creditors by the time you graduate from college. The first step is to choose a card wisely and the second step is to use it responsibly.
Choosing The Right Card
There are plenty of student credit cards available, and each of the lenders offering these cards is eager to win your business. Studies have shown that American’s are intensely brand loyal, and as a result, many people will hold on to their student card (or get an “adult” card from the same lender) long after their college days. As a result, some creditors offer generous incentives in the form of rewards programs or other freebies.
For example, Discover offers a rewards card, the Discover Student Card which pays you a percentage of your purchases in the form of cash back. Numerous other lenders do as well. Others focus on offering you an incentive to sign up in the first place; for example, some lenders have offered cash for opening and using a card, or even free airline tickets targeted towards spring-breakers who may want to apply.
Evaluate the rewards program to determine if it is right for you. For example, if one student card offers you a higher percentage of cash back on gas than on groceries, this may be a great bet if you are on your campus meal plan but drive home every weekend.
Make sure that you don’t just get caught up in cool rewards. You will also need to consider the annual fee, if there is one. Most of the time, getting a card with an annual fee is a bad idea. However, some cards- such as those offered by American Express- offer more generous rewards programs in exchange for you having to pay such a fee. Make sure that if your car does charge, the rewards program is better than other cards without a fee and that you’ll be using the card enough to make up for the cost of the fee through rewards earned. Most of all, don’t just choose the card offering free pizza on the quad, unless or until you’ve compared the rewards and incentives that card offers with other good student credit cardsa on the market.
Using the Card Wisely
Using the card in a smart way is also key to beating the creditors at their own game. In addition to brand loyalty, credit card companies also target college kids because they believe that college kids may not be financially responsible, and that they may have financially responsible parents who will bail them out when it comes to paying the bill.
Don’t be one of those kids. Use your credit card, but use it wisely. Ideally, if you can be disciplined and responsible, you should charge absolutely everything on your card. This means that if you and your friends go out for pizza, grab the cash from your buddies and pay the bill. This way, you’ll get the full amount of the bill counting towards your rewards points or cash back. Charge the expensive books you need, the meal plan, or even your tuition if you can.
However, and this is a BIG however, you should only charge things you have the cash for and you should never ever carry a balance. Carrying a balance negates all the benefit you get from rewards cards, and can end up costing you hundreds (or thousands) of dollars in interest if you make only minimum payments. If you can’t pay back the purchase in full, either don’t buy it, or in the case of necessities such as books and tuition, consider alternative and lower interest rate sources of funding such as student loans to make the purchase.
So, make sure you charge as much as you can, but make sure you pay your bill in full each and every month. If you are in the habit of charging absolutely everything, you may, in fact, want to make payments many more times than once a month. For example, if you bought that pizza and all your friends gave you cash, put the cash in the back the next day and immediately pay your credit card bill. That way, you won’t be tempted to spend the cash on something else. This is easy to do with online banking, and you’ll still get both the rewards and the credit building benefits, without the penalty of paying interest.