University and Credit
The Student Debt Trap
Student Debt Facts
- The cost of tuition and fees for a school year has increased from just over $1000 in 1998 to well over $5000 today, and that doesn’t include living expenses
- That is a 500% increase during a time when minimum wage in Ontario has increased by 60%
- In 1998, a student could work for 16 weeks in the summer and easily save enough to cover tuition
- With the increased prices in tuition present day, most students rely on student loans
(source: J. Douglas Hoyes, licenced Bankruptcy Trustee)
With the increasing cost of pursuing your education, it is easy to understand why the number of student credit cards issued in Canada is on the rise as well. There are many advantages to obtaining credit while still in school as long as you ensure that you are an educated consumer.
Advantages to Student Credit Cards:
- Allows you to establish credit slowly and responsibly
- Credit card statements track your spending
- Most credit cards offer points or rewards programs when you spend responsibly and pay on time
- It is safer than carrying cash on campus
- In an emergency, a credit card can be very helpful
Potential Disadvantages of Student Credit Cards:
- Spending money you do not have
- Falling behind on payments due to lack of money
- Opening too many accounts for “freebies”
- Allowing friends to spend your money
The Advantages
Establishing credit as a student is a great idea if you do it right. You can legally apply for a credit card at the age of 18. Most major credit card companies offer students credit based on their future potential to earn money. For example, a University student in an engineering program has a high potential for a successful career and a competitive income. You may be asking the question, “What about when I’m in school and I have no money?” That is a very good question to ask. If you accumulate debt while you are in school, you are still responsible for making payments on your account. That said, make sure that you only spend what you are able to pay back. A good rule of thumb is to use your card for what you would normally pay cash for and then pay off your card in full each month. This will not only avoid getting into too much debt, but it will also build a beautiful credit history for you.
An added benefit to using your card and paying it off each month is that you may accumulate points depending on the card that you carry. This is a very easy way get things for free! Pay attention to the details of your statement which will include your balance, due date, payment due and also your points accumulation. Shop around for the right points program and make sure you do not have to pay an annual fee for the program.
Carrying a credit card on campus is also a lot safer than carrying cash. If your card is lost or stolen, you can call your issuer and have the card cancelled immediately. Most card companies will not hold you responsible for fraudulent charges. If you lose the cash in your pocket, it’s gone.
Lastly, a credit card can be very useful in an emergency. Make sure you are conservative when it comes to deeming a situation an emergency. travelling home for a funeral is an emergency; pizza at 2am is not.
The Disadvantages
Establishing credit in school can be a very beneficial avenue but only if you navigate it correctly. There are a few turns to avoid if you want to be successful. Do not treat your credit card as free money. Credit cards can easily tempt you to spend money on things that you would not typically buy. Before you apply for a credit card, sit down and create a budget for yourself. After you have a credit card in your wallet, make sure you stick to that budget. When you know what you are able to spend, you are more likely to keep yourself within that limit.
In the event that you fall victim to the temptation of spending and you find yourself unable to fulfill your financial obligations, make sure you communicate. Call your creditor and let them know that you are having trouble paying. Talk to your parents or guardian and see if they can help. You do not want to begin your credit history with a negative mark. It takes a lot longer to recover from negative credit than you think. Bad marks on your credit report can stay there for up to 10 years. You will be long finished with school before that bad history goes away and it’s not worth it.
One of the ways that credit card companies market student credit cards is by giving away fun free stuff when you apply. Make sure you do not get carried away for the sake of a t-shirt or towel. Keep in mind that every time you apply for any type of credit, your credit report will be pulled and that inquiry will be recorded. When you are starting off with very little credit, these inquiries can damage what rating you have. Do research and find the best fit for yourself and open one or two cards at the most. Ask questions and feel confident that you are making an educated decision.
Lastly, don’t advertise your recently opened credit to your friends. In the event that they get themselves in a jam, you do not want to be the one bailing them out. Be a loyal friend and help when you can but don’t let your friends rely on you financially, especially when you are in school. It could ruin your financial future and your friendship.
Credit is something that will stay with you for your entire life. Start out the right way so that you can be proud of the decisions you made while you were in school. Establishing good credit is the first step on your journey through your adult life; make it a step in the right direction!
For more information, or if you feel that you might be in trouble with your debt, contact Consolidated Credit Counseling Services of Canada, Inc. at 1-800-656-3920 or visit us at www.consolidatedcredit.ca.
