Credit cards are awfully enticing. Pizza, Play Station games, full tanks of gas...you name it, you can charge it. And while it might seem that only an evil little demon of a financial tool could work that kind of magic, the truth is:
Credit cards aren't evil.
Truly, they aren't! Convenient, yes. Risky? Sure! But evil - no. Here's how they work, and how to work them, without messing up.
Credit cards are high interest, unsecured loans. They're equipped with interest rates as high as 29% along with plenty of other hidden fees and charges for things like late payments and running a balance over a specified limit. As a result, they present a very attractive - although risky - opportunity for young people to access goods and services they can't otherwise afford.
One of the most important credit card benefits, especially for college students, is the ability to build credit. Credit - a shadowy factor that determines whether companies will be willing to lend you money in the future - is based on your proven commitment to paying past debts. Borrow on a credit card and consistently pay that debt back, and you're building a credit history that lenders can rely on when it's time to buy a car, or even a home.
Some cards come armed with a reward system, and the rewards can be really substantial. Airline miles, cash back, fuel perks: you name it, a credit card company somewhere provides it. Without a significant credit history, some of these cards will be out of reach, so it's important to note that most cards targeting college students are designed to build credit, but won't do much else.
Just as credit cards giveth, credit cards taketh away. If you're late with payments, you're in big trouble. Credit card companies won't hesitate to ding your credit history for failing to comply with a strict payment schedule. The bigger risk, however, is incurring the debt that results from carrying a balance from month to month. With sky-high interest rates, most student-accessible credit cards will quickly become impossible to manage after only a few months of carrying that balance.
Evil? No, not at all. But risky? Yes, indeed. Credit cards should be assessed, cautiously approached, and even, sometimes, avoided. But if handled correctly, they can also be beneficial to students just starting out on the path to financial wellness.