Unfortunately financial education for students is often very limited. This lack of knowledge can lead to costly financial mistakes that can needlessly cost money and create a poor credit rating. In particular careful use of credit cards is very important for avoiding expensive financial mistakes. These are some tips for students who may be considering getting their first credit card.
1. Never Miss Making a Payment.
If you miss a credit card payment it will not just cost you money, but, also damage your credit rating. This may not mean much now, but, it will cause problems when you try to get a loan or mortgage later. If you miss payments your credit rating deteriorates this means banks are less willing to lend you money. To avoid missing a payment, you can set up a direct debit to pay either the minimum of full amount.
2. Avoid Borrowing on a Credit Card.
Credit cards are useful for making purchases. it gives you four to six weeks to pay back the credit card company. However, if you start borrowing money on a credit card and don't pay the full amount. You will find yourself paying a very high interest rate of 17%. This means a £1,000 debt will cost you £170 a year in interest payments alone. If you are not careful, you can find yourself paying a lot of money paying the interest payments and struggle to actually reduce the debt amount. Therefore, make it a rule to not borrow on a credit card. If you have to borrow try student loans, arranged overdrafts or a personal loan. At least here the interest rate is likely to be much less, perhaps 6 or 7%
3. Move to 0%.
If you do have a balance, accumulating interest at 17% then try switching it to a new card which offers 0% balance transfers. Some credit card companies offer 12 months interest fee for balance transfers. These can be of great help in saving money. Be careful, if you miss a payment this introductory rate will be cancelled. Don't try to be clever and borrow thousands of pounds at 0% and then putting it into a bank account at 5%. You are unlikely to make much and credit card companies don't like people who try to have too many cards. Save this for when you really need it.
4. Don't Be Swayed by free gifts.
When choosing a credit card, don't worry too much about a free cuddly toy or whatever is offered. It is more important to get a credit card which is useful. Don't add credit cards just for the sake of it.
5. Avoid Impulsive Spending.
A credit card can make it easier to overspend. The problem is that when we put things on plastic it seems much easier. If we had to pay cash we may think twice. If you have real problems with this, you might be better off not having a credit card at all. However, this is a shame because credit cards are useful. Try to feel each time you spend on credit you are parting with your hard earned cash. Make sure you have sufficient funds in your account.