While attending college, there is a great temptation to use credit cards debt to fund for vacations, dating, parties, electronics, and a zillion other personal excuses. This is a big mistake.
While you are in college, you’re likely to be earning an erratic part-time income and therefore poorly positioned to pay back the principal balance on any credit card debt. College students are unlikely to be financially literate, let alone skilled in budgeting necessary to take on personal debts. Incurring consumer debt during college forces too many students to leave school in order to pay down mounting debts. If payments are late, damage to your credit rating can even ruin some opportunities for employment.
Let me give you a real example of a common scenario. During college, a friend came to me with her credit card statement because she was baffled. She had charged $1,800 on a credit card (for a Spring Break vacation) and couldn’t understand why the outstanding balance wasn’t going down. She had been diligently paying $20 every month for 6 months but the balance wasn’t going down much. I looked at her statement and pointed out that she was being charged an interest rate of 11% and so $17 of her monthly payment was assigned to pay the interest, leaving only $3 to pay down the principal balance. I showed her that if she didn’t increase her monthly payment dramatically, it would take her 50 YEARS to pay off her one-week vacation. In 6 months she had already paid $105 in interest that did nothing to reduce her outstanding balance. She was unaware she had shackled herself with a 50-year burden when she joined her friends on that trip. A few years later she still had not paid off this vacation that she could barely remember, yet was costing her interest payments every month. How many 50-year debts would you like to have? Here is the painful lesson: if you cannot save enough to pay for a personal expense with cash – then you simply cannot afford that item. This is true for anyone and particularly those with part-time or sporadic incomes.