I remember when I first walked onto my university campus that I was flabbergasted at the number of people handing out credit card offers to students, from places like The Bay and Canadian Tire. “What would I want with a Canadian Tire credit card?” I thought.
Just before I went to school my parents gave me my own credit card – attached to theirs. I was thrilled, then I realized that they would be able to track every purchase I made.
Dealing with finances is a challenge for new students, especially because they have little sense of how much real things cost. Many have likely never paid a grocery or phone bill. Nor do students realize how much they might spend socializing with their new-found friends.
I had one friend at school who survived by living on cash advances from her credit card. She had several part-time jobs but it was always a juggle for her to keep the creditors at bay.
A credit card is almost a necessity of financial life but it can hurt more than help if you don’t treat it right. Most credit cards have a high interest rate – some as high as 20 per cent – so it costs you if you don’t pay your bill in full. And the cash advance interest rate can be as high as 22 per cent. (Ouch, that’s an expensive night out!)
Here’s a few ways to make sure you are using your credit wisely.
1) Look for a credit card with a low interest rate. Ratesupermarket.ca is a good site to compare card options. Another one is the Canadian arm of Credit cards.com. The Financial Consumer Agency of Canada website can also help you choose a card and tell you the real cost if you only pay the minimum. Watch out, because some cards have an annual fee in exchange for that lower rate.
2) Keep your credit limit low. You can ask the card company to reduce the credit limit - $500 might be about right - so you won’t be tempted to spend just because you can. CIBC offers students a credit card with e-mail spending alerts. Or, you can get a pre-paid credit card instead. With these cards you put a set amount of money on it and that’s all you can spend until you load on some more.
3) Pay your bill in full every month. Keep the credit card company happy. TD Canada Trust recommends students pay off their credit card every month to boost their credit rating and if they can’t, pay at least the minimum each month on time and work to pay off the rest quickly. Don’t just wait until the next bill arrives.
The FCAC recommends that if you can’t pay your balance in full, put the card away until you have. (That’s why there’s always that scene in the movie where someone buries their credit card in a block of ice.)
4) Avoid expensive cash advances. The FCAC also warns against cash advances because “you are charged interest from the day you take the advance until the day you repay the entire advance amount.” If you need cash, go to your bank’s ATM.
5) Read the rules, hide your card and keep your receipts. Retain your receipts to make sure no unknown charges show up on your bill and so you can track your spending. That way when the bill lands in your real or electronic mailbox it doesn’t hit with a thud.
And although it’s all in small print and seems boring, read the rules. They might surprise you.