Like many people, I've made quite a number of money mistakes. And getting into credit card debt as a young college student was one of them. I actually surpassed the average credit card debt for college students.
At the time that I was in college, every major event or job fair always seemed to have an agent (of financial destruction) from the credit company. They would have a booth set up decorated with balloons, offering free t-shirts and pens if you signed up for a credit card.
I remember being lured over to one such booth where the lady told me I could get up to $2,500. All I had to do was fill out this one form and how I wouldn't have to pay the money back anytime soon. Plus, I'd get this amazing t-shirt with the credit card company's branding on it. (To wear where, though?)
Thankfully, credit card companies can no longer market credit cards on college campuses. They however market directly to students online via social media and website advertising. Today, 36% of U.S. college students are in debt, and the average credit card debt for college students is over $1,000! The fact is that college student credit card debt comes with high interest rates. While there are valid reasons to get a credit card while you’re in college (to build your credit history, for example), it can also be very tempting to treat your card like “free money.” Trust me; it’s not.
Here’s my story, how you can learn from my mistakes and learn how to manage your college student credit card debt.
My credit card debt as a college student
I was about 18 or 19 at the time, away from home with a part-time job on campus that paid me $116 every two weeks. This was the only job I was allowed to have as an international student.
Fortunately, my mother supported me by paying my tuition and rent. Still, my responsibilities were paying my phone bill, buying my own groceries, and taking care of my other personal needs. So I paid my phone bill (~$30) each month and bought enough Coca-cola and Ramen noodles (~$40) to survive every two weeks. (How I survived on this hideous diet, I do not know.)
I found myself calling home to tell my mother about the "basically free" money I was being offered at school. Her response? "What could you possibly need in your life that you need to buy on credit?" She had a point.
Well, the next fair came around with another booth and another agent. Again I was lured over by the freebies and supposedly free money. I explained to them my mother didn't think it was a good idea. They were like, ‘But your mother never has to know. We'll send your statement directly to your on-campus address.’ And with that, I immediately signed up and was approved for a credit line of $2,000.
Blowing my entire credit card balance
I cannot, for the life of me, tell you what I spent that $2,000 on or how I spent it. I can however tell you I maxed out that card very quickly. Maybe that’s why the average credit card debt for students is so high. When I received my first statement a few weeks later, I was perplexed. 24.99% interest on what? I had sleepless nights thinking about my newly acquired debt and the fact that I didn't have a clue how to get out of credit card debt.
I ended up having to tell my mother what I had done (before she found out). Of course, I received the appropriate scolding. Then I used my meager savings (and by meager, I mean around $75 lol) and the money I was earning at my student job to pay the debt off and the hideous interest it had accumulated.
As little as the $2,000 seems now, thinking about it every day caused me a lot of stress, and it took me several months to pay it off, but I certainly learned a worthwhile lesson and how to manage credit card debt. At the end of it all, I ended up paying back the $2,000 plus 24.99% compounded interest, which was way more than anything I purchased on the credit card was worth. Stupid.
Moral of this story: College student credit card debt sucks if you don't have the means to pay it off in its entirety each month.
My tips for college students with credit card debt
Whether you went on a shopping spree, paid for expensive car repairs, or needed new textbooks, you still have college student credit card debt. You’ll need to learn how to manage credit card debt, come up with a plan to pay it off, and not fall into the same trap in the future.
1. Forgive yourself for your mistakes
We’ve all made mistakes, and maybe running up a credit bill is one of yours. Or perhaps you failed to plan and had to rely on credit for some important circumstances in your life. That's ok. You’ve come to realize it. Now it's time to make some changes and figure out how to manage credit card debt.
2. Create a plan to pay off your credit card debt ASAP
No matter how small your income, you need a budget to plan where your money will go every month. This should include how much to pay towards your debt.
There are different strategies that can work, depending on your situation. For example, the debt snowball method is a great approach to paying off multiple credit card balances. But if you only have one card as I did, focus on paying down as much as you can every month until you are caught up.
As a college student with limited earnings, this may seem overwhelming or impossible. But that’s not true. You CAN reach your goal of ridding yourself of this credit card debt.
3. Build your emergency fund of $1,000
A lot of people use credit cards to cover unexpected expenses like repairs or medical bills. Instead of relying on credit to cover these costs, start saving money in an emergency fund. This will help keep you from accumulating debt after every major event that happens in your life.
Your ultimate end goal should be to never carry a balance over. You also want to have a fully-funded emergency fund of 3 to 6 months of living expenses. But for now, focus on reaching that $1,000 mark in your savings. If needed break it up into smaller goals.
4. Live below your means
A key step on how to manage credit card debt is learning to live below your means. Living below your means will prevent you from racking up college student credit card debt. The average credit card debt for college students is roughly $1,000; however, the average credit card debt for the American household is over $5,000! Bad habits are hard to break, so if you can get ahold of your finances now, it will prevent future financial mishaps.
5. Curb your spending
Another crucial step on how to manage credit card debt is to curb your spending. It’s too easy to reach for that credit card for impulse purchases, and you will end up paying much more than the cost of that new item you bought than you thought. Let’s say you spend $20 a week on coffee; that equals $1,040 in a year! You could pay off your credit card with that money.
By not dining out as often, using lists while grocery shopping, and purchasing items pre-owned rather than new can help you save money and prevent debt.
When it comes to your personal finances, ignorance is not bliss. It comes back to bite you in the behind eventually. Educate yourself about all your current debt, know the interest rates, and learn how to manage credit card debt. Give yourself peace of mind knowing you have a plan to pay off your debt over time. And finally, vow you are done with credit card debt once and for all.