Some parents send their children to college with a credit card to use for “emergency” expenses and take full responsibility for the payment of the charges that will ensue. This, of course, makes sense, since the college student is not employed, more likely than not. Mom and Dad are often in for a big surprise when the bill comes in the mail.
College student credit, in the form of credit cards, is really an educational tool for learning credit lessons that will carry over into the world beyond college. One of those lessons is that you do not obtain another credit card because you have reached your limit on the current one. Another lesson is that debt is debt, whether in the form of credit card debt, or obtaining loans to cover “extra” expenses. In the end, the piper receives his due. Another way to help you stay on track is to check your credit score regularly.
Let’s start off by understanding the difference between your basic debit card and credit card.
When we say a student debit card, we mean a prepaid debit cards designed just for students. This is a card that you “load up” with money before hand. You choose the amount and you add it to your card – that simple. Then, you use the card to buy whatever you want because the card is actually a Visa or MasterCard product and so it can be used all over the world just like any other Visa or MasterCard.
You use it to purchase magazines, clothes, airline tickets, groceries, etc. Then, when you’ve spent all the money you loaded onto it, you either forget about it or you load it up with more money and continue as before. The key point to remember here is that you spend only the money you’ve already loaded.
Here are 5 insights into whether the best payment option for college students is a credit card or a prepaid debit card:
1. Student credit cards are a smart way for a young person to build up a solid credit history:
Having and using a major credit card regularly while in college is a sound idea. If used properly, it serve as a backup for when cash flow is tight. And, it be a great way to build up one’s credit score.
2. Most college students lack the discipline to pay the cards off each month:
No matter how much you love and trust the college student in your life, chances are they still have a lot to learn about disciplined money management. Most students lack the discipline required to avoid running up their card’s balance without paying it down each month responsibly.
3. Many students max out new cards within a matter of months:
In fact, upon first receiving their first card in the mail, a great number of college students proceed to max out their cards. They then start having to pay the cards’ very high interest charges each month while struggling the pay down the balance. This is not an auspicious way to start off life as a young adult.
4. A great way to help them manage their finances is with a prepaid debit card:
A smart way for a college student to manage their finances is through the use of something called a prepaid debit card. These cards carry major credit card symbols like Visa and American Express, so they can be used anywhere a credit card is accepted. You can purchase them in denominations of $25, $250, $1,000 or more – but no application or credit check is required. Using these cards to help a student with their living expenses is a great way to help them keep their expenditures in check.
5. Prepaid debit card usage does not reflect poorly on credit history, and these cards cannot be abused:
Unlike credit cards, a student cannot overspend with a prepaid debit card. When the card’s value is used up, it is done – until it is recharged or a new card is bought. And, there is no positive or negative effect on the credit score of the student by using these cards.
If you are looking for the best student credit card, consider getting the student a credit card with a very small limit so that they can start building their credit score. At the same time, help them manage their finances with a prepaid debit card.
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