Thursday, May 24, 2012, AM | 4 Comments
If you are a college student reading this, or a kid of yours is going to college, you might need a credit card or a debit card. So, which kind is better? If you go to a bank, they might try to convince you that a “prepaid debit card” would be a better choice for you. However, if you have good credit history and your credit score is high, then it might be a better choice to get a credit card. The reason the experts give is credit cards are the gold standard.
Change mindset from spending recklessly to more manageable spending
More importantly, before you get either card, you ought to have a mindset with determination that you will pay the bill each month in full. If the student is your son or daughter, you definitely should sit down with them explaining your financial situation.
Explain to them to not go overboard, not to spend like there is no tomorrow and just be plain financially smart with their credit card. If possible, set a monthly limit to them.
Build credit history
The student will have a chance to build a credit history of their own and build a higher credit score. The major component of a credit score is the person’s ability and willingness to pay according to the terms of the creditor.
The other important advantage is that the limit of liability for lost or stolen credit cards is $50. That’s the law. Besides, credit cards often have deals for airline miles, gifts and rebates of cash.
If you are not careful and don’t pay the full amount each month by the due date, credit cards do have the problem of making it easy to get stuck with high interest rates on unpaid balances. At least, for the first year, you should be responsible for paying his/her bill each month.
Most credit card companies will send duplicate statements to a second address. Sometimes, it is better to have the original credit card bill sent to the student, with a copy sent to the parents. Then the student has the financial responsibility, with the parents able to act as a backstop.
Debit cards, on the other hand, make it more difficult to get into a debt and high-interest situation. However, they do not count in determining credit history, and they have less theft protection. The prepaid debit cards have the advantage of making it almost impossible to incur debt. It’s usually a breeze to get one.
Often, however, there are hefty transaction fees attached with a debit card. My vote is for a credit card that you monitor carefully by having the bills sent to you rather than to your son or daughter. That way you can avoid the pitfalls, and help them manage their money or rather your money.
The notion that students have to incur debt has to be changed…
Keep in mind that we have somehow developed this notion in this country that as student we can incur large amounts of debt and is considered Okay. The reason some people give is because you can’t afford education otherwise. So you would keep piling up debt.
You might think that you will just pay it off when you graduate and get that high paying job. A college degree no longer guarantees that. Unemployment is going to the roof and some experts say it will get even worse.
Start living within your means…
My blog is for learning to live within your means and be debt free. But I am not against using credit card. On the contrary, my family uses it all the time but we pay the full amount by the due date.
So whichever card you see fit to get your kid depends entirely on your mindset. You must try every month to not incur any more debt.
In a Nutshell
Some parents set a limit for the student who agrees that anything over the limit will be a loan to him/her and they will have to pay to you over a period of time.
My friend, the good old days are gone. We as individuals and families cannot afford to incur debt any more. This year has to be set as the last year we will do such a thing.Facebook.com/doable.finance
- Apr 18, 2013: payday loans uk