Nearly a third of college students say their families have been financially impacted by the Covid-19 pandemic, according to a recent survey. As a result, 19% expect to take on more debt.
Some of that debt, it seems, will be on credit cards. Half of college students, 53%, are charging purchases to two or more credit cards, according to AIG Retirement Services and EVERFI’s survey of over 20,000 college students nationwide. That’s up from 41% last year and nearly double the 25% who reported using multiple credit cards in 2012.
Many students will likely carry balances on these cards — 38% do not plan to pay off their bill each month. About 40% say they currently have at least $1,000 in credit card debt and 14% report having more than $5,000.
“Of the different forms of debt, credit card debt is one of the worst,” says Rob Scheinerman, CEO of AIG Retirement Services. That’s because it’s typically very expensive — currently, the average interest rate is 15.91% — and there are no tax breaks like with student loans and mortgages.
For students who already have credit card debt, Scheinerman says paying it down should be a major priority. And that starts with making a game plan, he says. Start by creating a budget so you can understand your sources of income and where you’re spending your money.
Depending on your financial circumstances, make sure to pay at least the minimum on your credit cards each month so that your credit score is not impacted, Scheinerman says. But if you have a bit more wiggle room in your budget, plan to put as much money toward wiping out that credit card debt as possible.
In addition to paying down credit card debt, it’s important for college students to start building up an emergency savings account that has three to six months of living expenses stored away, Scheinerman says. “Nothing has been a stronger wake-up call for the importance of an emergency savings account than what we’ve been through in the past 12 plus months.”
Once credit card debt is under control, then students can look at tackling other forms of debt, such as student loans, Scheinerman says. But pay off the credit card balances first.
“The younger you are when you get control of your financial life, the better off you’ll be down the road, and more resilient to anything that might happen,” Scheinerman says.
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