Student's Debt Problem

Avoiding Student Credit Card Debt

Students are valuable customers for credit card companies, as they tend to stay loyal to their first card and continue to make purchases with it for many years, despite having loans and not having jobs in many cases. In order to not fall into debt traps, students should avoid using the credit card barring emergencies. They should be aware of the after effects of using a credit card which would help them keep track of money in a better way.

Students should be aware of the fact that credit cards geared towards students often come with high interest rates and many unfavorable terms. This is largely due to high default rates among students than among other age groups. Another reason for the high rates is that students usually have limited credit histories. A point to note for the students is that the credit card should not be considered as a source of income. Even though students have good intentions of paying off their bills in a timely manner after they enter the workforce, such intentions are never realized. Most often, students lack money managing skills which hit them hard when they use their cards to the maximum limit.

Some of the credit cards issuers do not require parental approval for issuing credit cards to students. This leads to further mismanagement of money by the students as they are given access to a credit card with pretty high credit limits, which they assume to be their money and spend on various things. Instead, the use of cash is advisable, whenever possible. Debit cards are good alternatives for college students. They allow retailers to deduct the money from the purchaser's bank account immediately. They work at ATMs too, if the student requires cash.

Thus, try not to take up a credit card in the first place, and if you do take one, try to clear the bills within the payment due date. Because, if you don't, you could be fighting your way out of debt longer than getting your way through school.

Credit Bureaus. Do They Like You?

Establishing Credit

Establishing credit is very important. Whether you have previously had a good credit standing and lost it, or you are just beginning to accumulate credit and establish a credit rating, a few standard concepts will help you establish a good credit rating.

The principle way that a lending agency obtains information about your credit history is through one of the credit bureaus. There are three nationwide credit reporting agencies in the United States that handle this, and they are Equifax, Experian, or TransUnion. These agencies collect your financial information from anywhere that you have developed a payment history. When purchasing anything on payments, these three credit reporting agencies keep a permanent record.

When borrowing money and establishing credit, you must be able to prove to the lender these four things:

1) Stability - You must prove that you can hold a steady job with a dependable income and that you have lived in the same place for a certain length of time.

2) Ability to repay - You must be able to demonstrate that your income exceeds your expenses.

3) Assets - Lenders will look more favorably on your application for credit if you have assets such as a home, car or savings account that can serve as collateral.

4) Credit references - Lenders will look to see that you have credit references and a good credit standing!

These four principles will help you establish good credit history, and from this, a credit score, to evaluate your availability to repay.

To maintain a good credit standing all purchases bought on time must continue to be handled in a timely fashion. To be responsible in your payments, you will need to prepare a budget from year to year to keep your finances on track; there is no way around it! Obviously you cannot spend what you do not make, so the easiest way to prepare your budget is to list exactly what is coming into your household and where that money is going.

Make two columns on a piece of paper. Title one side "Inflow" and the other side, "Outgo". Under the heading "Inflow", list all the finances that come into your household including paychecks from employment, part time jobs, side jobs, alimony, child support, everything. On the other side, make a list of your expenditures, and be as thorough as possible. List rent or mortgage, utilities, food, gas, clothing, credit cards, loans until you have created a list of everything that is spent in a month.

When you total each side, the Inflow should be larger than the Outflow. If it is not, then you will have to make some adjustments. It will have to come back into line because you cannot continue spending more than you are making!

Once you accomplish the budget and determine the financial level that you can maintain, when you make more money - you can make more purchases. If you overextend yourself for a temporary purchase, you run the risk of ruining your permanent credit history that you?ve been working so hard on. Think before you spend, and save your credit cards for emergencies by paying the entire balance each month. A good credit score is worth its weight in gold in today?s society where everything is bought on credit or credit cards.