Mr Credit Card is contributing a post today about student finances. You can follow him on his credit card facebook page as well.
A traditional college student fresh out of high school is, by definition, is someone who does not have experience managing their finances. When a pilot learns how to fly an airplane, they don’t start with a 747, they start with the smallest, simplest thing in the sky. Likewise, a college student who is just starting to manage his or her own finances should start with the simplest financial system available. In other words, follow the KISS principle, Keep It Simple, Stupid.
Start Simple
Pick a bank with branches both at college and back home. Open up a simple checking account and a credit card at that bank. Don’t fall into the trap of applying for the card with the greatest rewards, or the one that is handing out free T-Shirts at the concert. Just find one that you can manage simply and easily. Ideally, having a credit card from the same place you bank with will make paying your bills simply a matter of an internal transfer.
Memorize Your Statement Cycle – By having a single card, it is very easy to keep track of when your statement cycle closes and when your bill is due. That will make paying your bill on time immensely easier.
Keep Your Parents In The Loop – Unless you are entirely paying your own way through school, it is best to involve your parents in your finances, even those you manage yourself. Letting your folks know how you are doing financially will make it easier to work with them to fill any, gaps, in your cash flow. Use them as a backup to keep track of your finances before you get in over your head.
Always Pay Your Credit Card Balance In Full – The single most important piece of advice I can give would be to always pay your balance in full every month. Never pay interest on your credit cards. Your friends may do it, your parents may even do it, but once you start down that path, it is extremely difficult to get out of debt. If you begin with the premise that you will only make purchases that you can comfortably afford to pay in full and on time, you will always be ahead of the game. If you fall into the trap of not paying your balance in full, then you join the merry go round of always applying for a 0% balance transfer card to keep transferring your balance.
Stay Away From Multiple Credit Cards And Debit Cards – Once you have successfully established that you can pay your balance on time and in full every month, you might want to consider a second, back up credit card. The trick is to not go down that slippery slope towards having a wallet full of cards with unknown balances and due dates.
Notify Your Banks Of Your Address Changes – One of the greatest reasons that college students have trouble managing their finances is that they are constantly moving. Each year brings a new dorm or apartment, and most students end up back at home during the summer. Even though banking can be done online, it is still important to keep a current address on file with your bank, every time you move. At the very least, you want to be able to receive a check in the event that an account is ever closed with a positive balance.
(photo credit: gammaray)
Very true, I’m very thankful that my parents taught me to never keep a balance month to month on a credit card, they never have, and I in turn have also never paid a penny in interest to credit card companies, while being able to enjoy the rewards that these companies offer. My best advice would be very similar to Mr. Credit Card’s: start with one card, preferably as soon as you turn 18 (if you are responsible enough to pay in full every month) so you can start establishing a credit history. As much as I like the advice on obtaining a credit card through your bank, my bank would not offer me one on my 18th birthday, but Discover Card did (albeit with a very low limit, but hey, gotta start somewhere). Now a little over a year later, AMEX just approved me for a much larger credit line as a backup card. Again, I only recommend obtaining a credit card this young if you are responsible enough to pay it in full EVERY month! I have gotten insurance quotes for both auto and renters insurance and can see the monetary benefit of a well established credit history, my payments are 20-30% lower than my peers. It pays HUGE dividends to have good credit in college, if you can swing it. And one last time: ONLY IF PAID IN FULL EVERY MONTH!