Should Students have Credit Cards?
Credit cards are a form of debt and therefore it could be argued that students should not take them out as they will already be getting into a lot of debt with their loan. However, there are a lot of pros and cons of owning a credit card and these can apply to students as well as anyone else. It is wise to have a full understanding of student loans, credit cards and the specific student before deciding whether they should have a credit card or not.
It is important to remember that a student loan is not like other types of loans. It does not have to start being repaid until after the student graduates and repayments are means tested, so they only start once the graduate is earning above a certain salary. It will also be written off after thirty years, even if nothing has been repaid. Lastly it is paid through the tax code and so the graduate does not have to think about their repayments as they are made automatically and they do not have the budget to make sure that they can afford them as it comes out before they get their pay. There is also no risk that they will forget and not pay. Therefore, the loan is quite different to any other type of loan and there is really no need for them to have to worry about it.
A credit card allows you to buy things and then pay for them later. After a month you will receive a statement showing all of the things that you have bought and you will have a choice to either repay it in full at no charge or repay a small minimum and pay interest to keep the outstanding balance on the card. Credit cards do have some advantages in that they are more secure than debit cards when you are shopping online as they have better fraud protection and they offer insurance which means that if you do not get the items that you paid for or there is a problem with them and they cannot be sent back; you will be able to get your money back through the card company. You also get that interest free credit until the bill comes which can be useful if you are waiting to be paid or to get the next instalment of your loan.
Of course, the cards can get really expensive if you leave them unpaid for a long time. By just paying off the minimum it will take you a long time to clear the debt as very little of the actual balance is cleared and the payment mainly just covers the interest. This can mean that it can get expensive. As students often have no or very little income then it could be hard for them to afford to repay the debt as well. They might have to only repay the minimum because they do not have the money to repay the rest.
Should students have cards?
If cards are used sensibly, to buy things that would have been bought anyway but delaying paying for them or making the payments more secure then there is nothing wring with this. However, if the cards are used as an extra income and only the minimum repayment is made then these are not good. This is the same for anyone that has a card though – whether they are a student or not. The cards need to be used carefully, you should not buy more than you normally would and it is really important to make sure that you will be able to pay off the full balance each month. Setting up a direct debit to do this can be the easiest way to make sure that it happens.
So, if you are a parent and you are worried about your child, who is a student, having a credit card, then you may not need to be. It all depends on how well the card is used. If it is repaid in full and used to give security as well as convenience then this should be fine. However, if it is used to buy treats that would not otherwise have been bought and it is not paid off in full then this is where there could be a problem. This is because the debt will be expensive and the student will struggle to find the money to repay it until they graduate and start work. It can be wise for parents to chat to their children about money and how to be wise with regards to both borrowing and spending. Borrowing should not be feared but it needs to be done carefully and the borrower needs to stay in control of the borrowing rather than letting it control them.