I got my first credit card shortly after going off to college. “I’ll just use it for things like my textbooks and then pay off the bill every month” I told myself… seemed pretty simple to me, and it was much easier than carrying cash around. What could possibly go wrong?
Just a few short years later those textbooks, along with gas, clothes, beer, and going out with my friends added up to over $20,000 and I was in a deep hole… one that my meager just-out-of-college salary was not going to cover.
So what could I have done better?
The obvious answer is to simply show more restraint and follow a budget, but when you’re in living in a dorm a few doors down from your buddies and going out every night, it’s a lot easier said than done. Instead there are a few simple steps you can take to make sure this doesn’t happen to you.
Limit the amount of credit (and number of credit cards you have).
When students get their first credit cards, the credit limit is typically small, something like $500, but over time the credit card company will gradually bump that number up. They do this, of course, so you go out and spend more and in my case that’s exactly what happened.
Be sure to pay attention to your limit and keep it low, trust me… you can’t spend too much if your credit limit is low. If you can’t (or don’t want to) restrict your balance then maybe a prepaid credit card – which works more like a debit card – is the way to go.
Leave the card home when you go out.
In my case the plastic was just too easy to pull out when I needed (or wanted) something I didn’t have the budget for. Out to dinner, at the bar, or shopping for some new clothes, credit cards make it way too easy to blow through your budget. Leave the card in the dorm room, or better yet, home with mom and dad if you think you’ll be tempted to spend.
Make paying your bill – in full – your number one priority.
Credit card companies are in business to charge you interest – it’s how they make money – and with student cards the interest rates are typically higher than average. If you don’t pay off your bill within the grace period you are just throwing money away and after a while it can make it very difficult for you to pay off your balance. Treat your credit card bill like you would your rent or car payment and make sure you pay it in full to avoid these high interest charges. After all, wouldn’t you rather spend that interest money on something more fun?