subject: Even A Low-Interest-Rate Student Credit Card Can Get You Into Trouble - 5 Insights [print this page] Even A Low-Interest-Rate Student Credit Card Can Get You Into Trouble - 5 Insights
If you are a college student or are the parent of one, it would not be unexpected if you were to want to apply for a credit card to help with paying for ongoing monthly college expenses. And of course, a low-interest card would be preferable since it would save you money over time.
In fact, student credit cards have been a staple of the financial life of students for over three decades. During the '90s and '00s, in particular, card companies aggressively pursued college freshman, enticing them to sign up for new cards with the promise of cash-back offers and giveaways.
However, before you apply for a credit card of any sort, it is a good idea to consider all of your options in terms of how to pay for college living. Even a getting yourself a low-interest card can potentially get a college student into financial hot water in the form of building up overwhelming debt over time. The combination of high interest rates, excessive fees, and undisciplined students has led to a growing debt problem for many college students.
Here are 5 insights about why you should beware of even a low-interest-rate student credit card:
1. A student card has become much harder to secure on one's own:
As per new legislation passed in early 2010, credit companies are no longer allowed to approach college campuses or to offer free giveaways as a way to pursue new sign-ups.
2. Your card will require a cosigner:
In addition, the new legislation stipulates that anybody under 21 is now required to have a cosigner on their credit cards. Usually, this means a parent - although some students will take advantage of loopholes, such as having a graduate student cosign the application.
3. Low-rate student cards usually are accompanied by hidden fees:
Students find it very difficult to qualify for low-interest credit card offers, even with a cosigner. However, even when they are approved for a low-interest card, there is usually a downside to such deals, such as the presence of excessive fees like annual fees and account sign-up fees.
4. You will likely end up with about $4,100 in credit card debt upon graduation:
According to a recent Sallie Mae study, the average college student carried about $4,100 in card debt upon graduation. The takeaway: high-interest or low, most student cards end up building up very high balances by the time the student graduates. This debt might follow the student for years to come.
5. Consider a prepaid debit card instead:
One viable alternative to getting a student card: get a prepaid debit card instead. The user (student or his/her parents) just loads the card with a balance in advance. These cards feature the major credit card logos, so they can be used anywhere a credit card is accepted. But, there is no application process, no credit check, and no cosigner required. And, more importantly, there is no interest paid and no way to run up a balance that will follow the student around for years after graduation.
Consider these 5 insights as you decide whether to apply for a student credit card. One viable option for you: have the parent cosign on a credit card application for the purposes of using the card as an emergency backup. But, for daily expenditures, use a prepaid debit card instead.
