Student Credit Cards Center

College Student Credit Card Debt:
Understanding The Fees Can Keep You Debt Free

One of the most common mistakes made by first time credit card users is over spending. When you first get a student credit card, it’s easy to fall prey to this mistake and hard to stay out of debt initially, because of all the fees associated to over spending. In this day and age, more and more news reports are coming out about college student credit card debt, and how students are falling victim to this overwhelming reality. Making timely credit card payments is one way to steer clear of this mess, but understanding exactly what you are signing up for when getting a credit card, is the first and most important step in staying out of credit card debt.

College Student Credit Card Debt: No Money is Free Money

Student credit cards are not “free money.” Too often, we get a credit card with a high limit and go on spending sprees without considering the actual costs. So what are these costs? To begin, certain fees come along with certain credit cards. We suggest that you review our credit card brands section to see which cards come with yearly membership fees and what those fees include. The common fee that you will see with every card is APR. The Annual Percentage Rate is the interest rate applied to your spending. As a first-time credit card holder, you are likely to have a high APR. You have to earn a lower APR by building positive credit history. Still, no matter how much positive credit you earn, you will never find a card that gives you 0% APR for more than 12 months. This is what ensures that credit cards are not free money. All money charged to your credit card will also be charged your APR, which could be anywhere from 8 to 30 cents per dollar you spend.

Below is a credit card profile. Use this chart and the following scenario to understand other “hidden” fees that will help you better manage your money and stay out of college student credit card debt.

Other costs associated to your student credit cards include late fees and over the limit fees. Using the chart above, let’s assume that you go just $1 over your limit. If this happens, that $1 will cost you another $45 for exceeding your limit. There is also an opportunity for a double whammy here that few know is possible, until it sneaks up on them from out of nowhere. Let’s say you have a credit card with the attributes listed above and your balance for the month is at $960. Midterms are coming up and paying your bill on time is not the first thing on your mind. You accidentally miss your payment, and your credit card company places the $45 late payment fee on your account. This fee will be added to your balance, immediately placing you $5 over your limit, and your over the limit fee will also get assessed to your account. Now, because of one missed payment, you owe an extra $90. It’s hidden fees like this that are the main cause of college student credit card debt. Because few students expect these fees, few are prepared to pay them when the next bill comes around. The fees continue to add up, and then another story hits the local paper about the latest college student credit card debt on campus.

Hopefully the above scenarios are starting to clarify the magnitude of credit. If you use your student credit cards with the knowledge that these fees exist, and work hard to steer clear of them, then you will easily stay out of debt. If you charge beyond your means and then fall into the cycle of hidden fees, then you could also fall into the cycle of college student credit card debt. When choosing a student credit card, think about the implications of over spending by studying all of the fees associated with the card. Once you understand your student credit card profile, you’ll be able to use the card more responsibly and successfully.