As a parent, sending your child off to college can be a nerve-wracking experience. One of the many questions you may be asking yourself is whether or not your child should have their own credit card. While credit cards can be beneficial in certain situations, they also have the potential to become financial burdens. So, how do you know if a credit card is right for your child?
Using a credit card responsibly can help college students learn important financial skills such as budgeting, managing debt, and understanding interest rates. Additionally, credit cards offer several benefits for college students:
Emergency Expenses: If unexpected expenses arise, such as a car breaking down, a credit card would provide the ability to pay for repairs immediately. This is extremely helpful if they are unable to get in touch with you right away.
Class Supplies: Students will need to purchase books and other materials for their classes throughout college. A credit card would ensure your child will not fall behind in their classes because they cannot buy the required supplies.
Credit History: Time spent in college is an excellent opportunity for your child to build their credit history and score. This will be helpful when they purchase a car or begin looking for an apartment or home after graduating.
It's no secret that credit cards can become tempting, especially to those without first-hand experience managing debt. You may worry that your child will fall into the trap of frivolous spending or purchase items you wouldn't approve of, such as expensive computers, phones, or even trips with friends. However, college is when many young adults will open their first credit card, frequently without parents knowing. Being hands-on in their decision to get a credit card will allow you to help them make smarter decisions and understand the importance of managing their credit card use.
Being part of your child's decision to get their credit card allows you to help them avoid the harmful pitfalls of credit cards. Here are two strategies to help keep spending under control:
When you help your child apply for their credit card, request a lower credit limit, such as $500. With a lower limit, your child will not be able to amass substantial debt and will have smaller, more manageable monthly payments. If they need assistance, the balance would be low enough to step in and help without burdening your own finances too much.
A secured credit card acts exactly like a standard credit card, but with one key advantage. You or your child will put money aside with your financial institution to cover the balance of the credit card, for example, $500. If your child is unable to make the monthly payments, the financial institution will use the money set aside to make the payments. This is a perfect option for those just learning to manage credit card debt.
It's important to note that not all credit cards are the same. Extravagant rewards-earning credit cards often come with high-interest rates and other hidden fees, which can lead to even more financial hardships. As a not-for-profit financial institution, Magnolia FCU offers low-rate credit cards without high fees.
In conclusion, credit cards can be a valuable tool for college students, allowing them to establish credit history, build financial responsibility, and even earn rewards. However, it's important for students to use credit cards responsibly and avoid taking on too much debt. The statistics show that college students are at risk of accumulating significant credit card debt, which can have long-lasting consequences on their financial future.
To make the most of a credit card, college students should aim to pay off their balances in full each month, only charge what they can afford, and avoid high-interest cash advances. They can also take advantage of student-specific credit card options and look for cards with no annual fees or rewards programs that align with their spending habits.
Overall, having a credit card as a college student can provide opportunities to learn valuable financial skills and build credit. As long as students approach credit card use with caution and responsibility, they can reap the benefits without falling into the trap of debt.