Island Savings

Using credit while you’re still a student

Use your student days to establish your credit worthiness

Credit card use among post-secondary students in Canada is on the rise. While there are benefits to using credit, there is also a dark side that young people are particularly vulnerable to.

Using credit is convenient and gives you the ability to pay for larger ticket items that may have otherwise been beyond their reach. Establishing a credit history is also essential to building your credit score and mastering your money management skills.

Recently, low-limit credit cards have become readily available to students. Getting a card early can have benefits, specifically around creating good credit history and achieving a positive credit score—critical factors when applying for a loan or mortgage later in life. Responsible credit card use also promotes responsible cash management.

Shedding light on the dark side of using credit

While the increasing availability of credit for major purchases may be out of step with previous generations who saved first then spent, credit is now a necessity of life. However, this can also create a buy-now, pay-later mentality that encourages unnecessary spending.

The biggest danger with using credit is the fact that nothing tangible changes hands. It’s easy to overspend when you can’t see the money disappearing from your wallet. This can create some really bad spending habits.

Bad spending habits that lead to the real dark side of using credit cards, the dreaded “debt cycle”—a situation where people find themselves unable to pay for their purchases and have to borrow more to stay afloat.

The best advice is always the simplest, don’t spend beyond what you can afford to pay off at the end of the month. Like any debt, the key is to not over-extend yourself. As soon as you find yourself in a situation when you can’t pay off your credit card balance every month, you need to curb your spending and focus on eliminating the balance. Students are often more susceptible to excessive credit card debt because they don’t have a lot of disposable income and lack experience in managing their finances.

Money management is a skill, and managing borrowed money is an even greater skill. As we get older we hone these skills and become less inclined to fall into financial strife.

 

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