No Credit Card in College
In college, students get flooded with special offers from credit card companies. There is a reason for this. They want to hook you early on using credit cards. In fact, more than 50 percent of graduating college seniors have credit card debt (before they even have a job).
Getting hooked on credit cards is as bad as getting hooked on drugs. Once you start using one, you’ll want to use it more. Then, you will want to get more credit cards because they have special offers. Before you know it, you’ll be leaving college with more debt than you can handle for the rest of your life.
You can also compare having a credit card to having a dangerous weapon that you have no idea how to use. Pulling it out the first time may make you nervous. But the more you take it out, the easier it gets to use it.
You want a new shirt, an expensive dinner, or just some tickets to a concert all your friends are going to. Unfortunately, you don’t have the money, but you have a credit card. It’s so easy to just use it now and pay later. Don’t do it.
There is absolutely no reason to have a credit card in college. You can use checks, a debit card, or—why not pay the good old-fashioned way?—cash! Buy only what you can afford. College is a time to enjoy life. It’s also a time when you see others doing things you want to do and having things you want to have. You can still enjoy life without having a credit card. Live within your means. This also means living without a credit card while you’re in college.
A survey from Motilal Oswal Financial Services Limited (MOFSL) reveals that in India, the total outstanding credit cards are 67.6 million (Dec 2021). These numbers are increasing at a rapid pace year on year. The bitter truth is all the credit card users are not paying these credit card bills on time. As per Yahoo Finance survey, only 44.10% of people pay the full amount of credit card bills (Oct 2021). It means other groups of people are either paying the Minimum Amount Due (MAD) or little more than that. When a person is not paying the full amount of a credit card bill, then it calls for heavy interest. The credit card issuers levy steep interest rates of 14-49% per annum on the unpaid proportion of credit card bills.
So students must avoid having a credit card in college. Without income, sooner or later they will be trapped in credit card’s heavy interest.
After College, Only One Card
It boggles my mind why people have more than one credit card. Is one not enough to buy all the stuff they need? Do they want to get points from different airlines? Anyway, these points remain unutilized unless you are a frequent traveler. Do they want that one-time 5 percent discount from their favorite retailer?
According to unicorn startup Slice, which calls itself the biggest credit card challenger in India, it is issuing 2,00,000 cards every month. Of its total base, around 48% of the new customers who joined slice in 2021 were between the age group of 18-24. Another 36 % were in the age group of 25-30 years. Another startup, Uni disbursed Rs 120 crore pay-later cards in Nov-2021. The startup claims it is seeing a 40 % month-on-month growth.
There are so many small, short-term incentives to have multiple credit cards. Remember that the benefits are small and short-term. It’s not worth the potential long-term debt to succumb to the promotions of card companies.
Some people believe credit cards are status symbols (see the person who has five credit cards, and they’re all Platinum level). More credit cards mean more chances of not paying the full amount of credit card bills i.e. paying heavy interest. So, be proud you have only one credit card.
Having one credit card makes it easy to keep track of transactions and manage bill payments. Better yet, forego a credit card and just use a debit card. A debit card will do everything a credit card does, except one thing: It won’t get you in debt!
Pay the Card Bill Every Month
This should be simple: Purchase only what you can pay for. If you need a big-ticket item, then save up the money until you can afford it. Buying more than you can afford results in a downward spiral of increasing debt.
Let’s take a simple example:
▪Purchase a $10,000 home entertainment system with your credit card.
▪Your credit card has an APR (annual percentage rate) of 15 percent.
▪You pay the minimum payment of 2 percent of the balance.
▪Your first payment is $200, of which $125 goes to interest; only $75 goes to the principal.
It will take almost seven years and close to $16,000 to pay off that $10,000 credit card purchase. You will be paying 60 percent more for the home entertainment system than if you had paid cash! So, don’t do it. Wait until you can afford it, and pay only the actual price for the entertainment system.
In addition, if you do decide to get one credit card, make sure you shop around for the best APR, terms, and fees. Don’t be suckered into high-interest rates because you’ll get freebies from your favorite airline, hotel, or store. Those freebies will be costing you a pretty penny if you have a high-interest rate and/or high annual fees.
If you pay your entire credit card bill monthly, it will become a way of life. Once you do this, you will never consider getting behind in your payments. You will truly enjoy the financial freedom and stress-free life that doing so provides. (Inspired from ‘Why Didn’t They Teach Me This in School?’ by Cary Siegel)
“If you don’t have the money management skills yet, using a debit card will ensure you don’t overspend and rack up debt on a credit card.” – T. Harv Eker
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