The Pitfalls of Credit Cards

University Academic Success Center

A credit card is not always the best answer to financial difficulties. Many students are afraid to take out a loan, but in reality – a credit card is also a loan if it is used. Students often see credit cards as the “best option” since credit cards provide a short-term fix to financial difficulties or struggles. Students usually have not experienced the long-term financial repercussions of using credit cards like money and should be extremely cautious. Once a student realizes that they are in financial trouble due to a credit card, they are usually too late to save themselves or their credit.

Many credit card companies see students as prime customers. Reading and understanding the fine print of the legal jargon within the credit card’s pamphlet of “Terms and Conditions” is nearly impossible. By luring in the student with a low interest rate (at the time), the student typically finds it easier and easier to use the credit card for reasons outside of its original intent (buying entertainment systems/fashionable clothing instead of just paying for school and books).

The credit card is often viewed as money and not a loan; this is a major pitfall. The once low interest rate can jump several times in order to increase the amount of money owed by the student. This often will result in a student getting another credit card if possible. Credit card companies may also increase the line of credit to a student who has maxed out their card. With a higher credit line and a higher interest rate, a student is more prone to use the card and pay only the minimum payment (due to the high amount of debt already accumulated). Therefore, the student is only paying for the interest of the credit card and hasn’t even begun to pay for the amount owed. This can result in a longer period of debt than if the student had just taken out a student loan whose interest rate tends to be more fixed than a credit card.

A student can end up being a much more profitable client for the credit card company than he or she ever intended. Once again, extreme caution should be practiced when accepting those often confusing “Terms and Conditions” of a credit card.