Credit Cards For College Students

Share |

With the start of another school year fast approaching, now is the time for college students to decide how they will manage their money. The available options generally fall into one of three categories: credit cards, prepaid cards, or bank debit cards. Each has its own set of advantages and disadvantages. And for some students, a combination of two options may be best.

1. Student Credit Cards

Student credit cards have come under attack recently by consumer advocacy groups and the government alike. The criticism revolves around the growing levels of debt students are accumulating on credit cards. A recent study by Sallie Mae, for example, found that 84 percent of college students have at least one credit card with an average balance of $3,171. In addition, more and more students are charging direct educational expenses to credit cards, not just living expenses.

For students who use credit cards responsibly, however, they offer several advantages. For example, credit cards can be used in emergency situations and can help young adults build credit. Many student cards also come with reasonable interest rates, cash back and other rewards, and even balance transfer offers.

Pros:

    * Great for emergencies
    * Can help build credit
    * Can earn cash back and other rewards
    * Many no-fee offers available

Cons:

    * Interest rates can rise with late payments or defaults
    * May require a co-signer
    * Can hurt credit history if paid late, maxed out, or not paid at all
    * May lead to significant debt


2. Prepaid Credit Card

Prepaid credit cards are a hybrid between bank debit cards and traditional credit cards. Like a bank debit card, you can only spend what you have already loaded onto the card. Unlike a debit card, however, a prepaid credit card is not linked to a checking account. And like a credit card, prepaid cards can be used just about anywhere a credit card is accepted. Parents can easily transfer money from their bank account
to a prepaid card. And some cards let parents monitor how money is spent using the card. If this is the option you choose, the key is to find prepaid credit cards with no fees or at least very low fees.

Pros:

    * Can be used anywhere credit cards are accepted, without the risk of going into debt
    * Many no fee and low fee options available
    * Easy for parents to load with a bank transfer
    * Accepts direct deposit for students who work
    * No late payment or overdraft fees

Cons:

    * Does not build credit
    * Generally, prepaid cards do not offer cash back or other rewards
    * Can be used for emergencies, but only if cash is already loaded onto the card

3.  Debit Card

A checking account with a linked debit card is the traditional way to handle finances for college students. Because debit cards
today generally are part of the Visa or MasterCard debit networks, they can be used just about anywhere that accepts credit cards. And there are many no fee checking account options, some of which even offer a cash back debit card. As with any checking account, however, there are some potential pitfalls. Bounced checks and overdrawn accounts will generate penalty fees. And some banks charge fees depending on the balance maintained in the account. Finally, ATM fees can rack up if you use ATMs not owned by your bank.

Pros:

    * Many no fee and low fee options available
    * Debit cards are accepted just about everywhere that takes credit cards
    * No risk of going into debt

Cons:

    * Does not build credit
    * Can be used for emergencies, but only if cash is already in the account

source : usnews