As a student, you are likely to find that you are a prime target to be offered what might appear to be tempting deals on credit and store cards by banks, credit card companies and shops.
Credit cards and store cards are a major contributing factor in student debt, and the advice is to try and avoid them at all costs. It is far too easy to run up debts on cards when you have no way to pay them off. This leaves you in the position of having the worry of not only the original debt, but also the added interest. Interest rates on credit and store cards can be outrageous, and will increase debt at an alarming rate.
However, if you do have a credit or store card, or are considering applying for one, please think about the following:
- In an attempt to get your custom, you may find yourself being tempted by things like free gifts, cash back, or points which can be redeemed later. However, it is important to look at the terms and conditions of the card, not just the offers. If you are not able to pay your credit card bill in full every month, the high amount of interest that will be added will far outweigh the value of any free gift or points you might be earning.
- Some companies offer a 0% interest rate for a period of time, often 6 months. However, beware! Once the 0% period is up, if you cannot pay off your balance in full you will be hit with a hefty rate of interest, and you could end up paying more than you would have done if you had used a card with a lower rate of interest. Only use these cards if you know you will be able to pay your balance in full before interest starts to be added.
- Never miss a payment and do not exceed your credit limit. If you do, you will find yourself facing extra penalty charges. However, be aware that charges over £12 are now considered unfair and should therefore be challenged.
- Missed payments will stay on your credit report for years and could harm your chances of getting finance you really want, like a mortgage, so it's really important to be in control of your spending.
- Remember, a credit or store card is not a way out of financial difficulties; they are far more likely to make the problem worse than solve it. Only use a credit or store card when you know you will be able to pay your balance monthly in full. If you cannot do this, expect a high rate of interest. Recent Bank of England figures showed that consumers owe a total of nearly £57 billion on their cards- the equivalent of about £1,000 for every man, woman and child in the country.
- Some credit card companies are now charging an annual fee just for the privilege of having the card.
- Don't be tempted to only repay your minimum payment every month. The less you pay each month, the longer it will take to clear your balance, and the more interest you will be charged.
The basic rule is simple: If you don't think you will be able to pay off your card every month, don't get one!
www.moneyadviceservice.org.uk- Impartial advice regarding financial services and products.