Avoid This $50 Credit Card Mistake I Made as a Student

As a college student, I made a lot of mistakes. I overdrew from my bank multiple times, which cost me about $35 a pop. I sold investments that later grew 10 times in value (cough Tesla cough). Frankly, I had no clue what I was doing because it was all new, and I was learning.

None of the above made a huge dent in my long-term finances. But I did make one credit card mistake that, had I let it snowball, might have pulled me fairly deep into debt.

In a nutshell, I only made minimum payments on my credit card. I even scheduled automatic payments, so I didn't have to think about it. The combination of the two cost me about $50 before a close friend let me know that I was digging the first nine inches of a shallow grave.

The $50 credit card mistake

Only making a credit card minimum payment is like spotting a weed and only trimming the part above ground. Everything is fine until the following month, when the weed returns with a vengeance, taller and stronger than ever.

That's because credit card users pay interest on balances. Say you have $120 of credit card debt. You pay your monthly minimum payment of $20, leaving you with $100. Your credit card company will charge you the APR of your credit card. If that's 15%, then it will add $15 to your $100 debt. That $115 will be carried over into next month's balance. Over time, it snowballs.

It's good to make minimum payments because they protect your credit score. If you pay your minimum, FICO won't ding you for making late payments. But you'll still accrue debt, assuming there's money left on your monthly credit balance.

My mistake cost me somewhere between $50 and $100 before a classmate told me that paying my credit card minimum would not, in fact, stop me from racking up more and more debt.

How to avoid credit card debt as a student

You can do a few things to avoid debt as a college student. One is to simply pay off 100% of your student credit card balance monthly. That's the most straightforward way to get the benefits of credit card rewards without racking up debt.

Another thing you can do is stick with debit cards. They're not as secure or rewarding as credit cards, generally speaking, but there's no risk of you going into debt. If you can't afford to pay for something, your debit card will typically decline the transaction.

If you must take on a bit of debt but have no way to pay it off right away, you can apply for a 0% intro APR credit card. This might be more difficult for students, who typically have short credit histories. But if you can swing it, you can go months without paying interest on your balance.

However, if you're taking on long-term debt and you think you'll be charged interest on it before you can pay it off, consider taking out a personal loan instead. The rates are typically better than those on credit cards.

Alternatives to student credit cards

As a student, I used the Discover it® Student Cash Back credit card. It was easy to get, and the mobile app was convenient. I swiped it here and there to build credit.

Mostly, though, I swiped debit cards and paid with cash. Doing so helped me track my budget; back then, I didn't use budgeting apps that did the math for me. The downside was my bank charged me overdraft fees. Tallied up, they cost me much more than my credit card did.

These days, many banks have done away with overdraft fees. Some even offer checking accounts for students with student-specific perks. So long as they charge $0 monthly and don't charge overdraft fees, they're worth looking into.