As another year of university starts again, many young Aussies may be asking themselves how they’ll be able to afford the costs that come with schooling.
Most students can keep up with casual or part-time work at the most while juggling their schoolwork. Which means cash can often be in short supply.
One option students may turn to is taking out a credit card. But is this really the best choice for your schooling years?
Here’s the reality of how credit cards can have their advantages and disadvantages for students.
Pros and cons of having a credit card as a student
- Build your credit history. As a young Australian, you’re unlikely to have built up a credit history yet. A good credit history and score is important for anything from getting a rental lease to applying for a home loan one day.
- Learn good money habits. Having a credit card is a lot of responsibility. You’ll need to plan ahead if you want to avoid falling into debt. A credit card can be helpful in teaching students about creating a budget and sticking to it, as well as making sure bills are paid on time.
- Overseas travel can be easier. Credit cards can also be a helpful resource when travelling overseas. Often, they may be needed when booking accommodation and rental cars, especially in places like America where they may not accept debit cards for these services. Further, they can take the pressure off your savings when used for a holding deposit when staying in a hotel.
- Access to credit when needed. The most obvious advantage of a credit card is the access to credit you otherwise wouldn’t have. Whether you use this for supplies like a laptop, lab equipment and books, or keep in your back pocket for emergencies, a credit card can offer peace of mind for cash-strapped students.
- Debt early in life. There’s a reason credit cards and debt often go hand in hand. Credit card debt accumulates when interest is applied to a balance that hasn’t been paid off by the end of the billing period. Many Australians (not just students) are unprepared and uninformed about how a credit card works, and how easily debt can snowball. The last thing you want is to leave university with thousands of dollars of credit card debt (on top of a HECS-HELP debt).
- Messing up your credit history. They say it’s worse to have a bad credit score than a bad reputation, which goes to show just how important your credit history is. If you’re reckless with your credit card, this could set your future financial life up for failure. For example, a default can stay on your credit file for five years.
- Buying what you can’t afford. Another common trap people fall into is spending up to their credit limit, just because it’s there. It’s generally recommended you don’t purchase something you can’t otherwise afford. Especially within your billing period so you don’t accrue interest on outstanding debt.
What to look for in a credit card
If you’re still interested in taking out a credit card, there are a few things to look for that can help keep you out of debt (and out of trouble).
You may want to consider looking for a credit card with:
- A low credit limit
- A low interest rate
- Low or no fees
A low credit limit will reduce the amount of debt you may fall into if you max your credit card. You’ll also more likely be approved for a card with a low credit limit ($5k or under) than a higher one if you have a low income or short credit history, as many students do.
Low interest rates and low fees are a no-brainer when it comes to getting any financial product. However, when it comes to credit cards, higher fees or rates often go hand-in-hand with rewards programs and other perks.
If you’re a student, consider whether those kinds of extras are really necessary for your lifestyle and worth the cost. A basic, low rate credit card may be a better suit for your financial needs and budget. If you think there may be times you can’t pay your credit card balance in full each billing cycle, you’ll want to consider a low rate option.
However, if you’ve set a budget and know you’ll pay off your balance in full before it can accrue interest, you may want to prioritise avoiding credit card fees. There are 32 credit cards in the RateCity database that don’t charge annual fees.
Are there student-specific credit cards?
There is currently only one student-specific credit card in the Australian market.
ANZ offers the First Student credit card for those 18-or older studying full-time at an eligible Australian education institution. To be eligible, applicants need an annual income of at least $15,000. This may include payments from part time work, Youth Allowance and Austudy.
However, it’s crucial that you do your own research and choose a credit card that suits your needs and budget. There’s no one-size-fits-all credit card for students even if a credit card provider has labelled it as such.
A good way to find a credit card that suits you is to use comparison tools. A comparison table will show you a range of card options, as well as the purchase rate, interest free days, and fees. This helps you compare apples with apples and narrow down your choice.
Here are the lowest rate credit card options in the RateCity database:
|Credit card||Purchase rate||Annual fee||Interest free days|
|G&C Mutual Bank Low Rate Visa Card||7.49%||$50||50|
|Auswide Bank Low Rate Visa Card||8.70%||$50||55|
|American Express Low Rate Card||8.99%||$0||55|
|Community First CU Low Rate Card||8.99%||$40||55|
|Northern Inland CU Low Rate Visa||8.99%||$0||0|
What other financial assistance options do I have as a student?
According to StudyAssist, there are a range of government loans and subsidies in place, including:
- HECS-HELP: A loan scheme to help eligible Commonwealth-supported students to pay their student contribution amounts through a loan or upfront discounts.
- FEE-HELP: A loan to help eligible fee-paying students to pay their tuition fees.
- SA-HELP: A loan that assists eligible students to pay for all or part of their student services and amenities fees.
- OS-HELP: A loan to help eligible Commonwealth supported students pay their overseas study expenses.
- VET Student Loans: A loan program that helps eligible students enrolled in certain higher-level vocational education and training courses at approved course providers to pay their tuition fees.
However, many young Aussies are pushing credit cards to the wayside in favour of buy- now-pay-later services, like Afterpay.
According to the report “BNPL 2019: More Shoppers, More Players and More Options” from Power Retail, use of credit cards as an online shopping payment method usage had fallen from 35 per cent to 29 percent in the 12-months leading to September 2019.
Further, around half of under-30s were found to have used a buy-now-pay-later service.
When it comes to the best way of financing your student days, the answer is really up to your personal preferences. As long as you do your research before making any decision, you’ll hopefully put yourself in a good financial position for the future.