Is Getting a Credit Card in College a Smart Move?
- Crayton Koranda
- Jan 20
- 9 min read
Building credit or risking debt?
In Today’s Email:
🤔 Benefits Are Overstated
🔒 Increasing Friction On Spending
📈 Reducing Friction on Saving
🔧 Other Tools Instead
💰 Reflecting On Your Finances
⚠️ Societal Cost of Credit Cards
🤔 Benefits Are Overstated
No, you shouldn't get a credit card while in college. I got a credit card my sophomore year because I read I Will Teach You To Be Rich by Ramit Sethi. I am not knocking the book you should go read it and see what you can learn. But one of the things he talks about is creating this personal financial system that runs itself. One part of this is using credit cards. By putting almost all purchases on credit cards you can get usually 2% of your money back and build credit. Because of this, I fell into the belief that it would help me become rich. In the book on page 30 Ramit states "Our largest purchases are almost made on credit, and people with good credit save tens of thousands of dollars on these purchases Credit has a far greater impact on your finances than saving a few dollars a day on a cup of coffee". This all sounded amazing on top of the fraud protection and I don't have to pay till the end of the payment due date typically 21-30 days from the last payment. Yippie right? Yet Yu-Ting Chiang and Mick Dueholm wrote " According to the SCF data, 46% of American households held credit card debt in 2022" (Federal Reserve Bank of St Louis 2024). Most Americans carry a balance of thousands of dollars as well. All of the money going to interest completely destroys the benefit of the cash-back effect. Many people hype this benefit and say they are "making money". To make $200 on a 2% cashback it takes $10,000 of spending. This doesn't encourage people to make or save money but to spend more.
Now people will say that credit cards are worth it if you have a budget and control your spending. Well then why is 46% of US households in debt? Debt.com surveyed over 1000 Americans in 2024. They said, " 90.05% of Americans said they do budget". (Debt.com 2024). However, I want to literate here that actions speak louder than words. Dear reader, do you even have a budget? I highly doubt that 9/10 Americans have a budget. Credit cards don't exist for your benefit and very rarely can you game the system to beat the credit card companies. These people bring in billions of dollars they know how to game you. Those credit card points encourage you to spend more. You don't feel the damage as you would with cash or a debit card. The bill doesn't hit you till weeks later. This is the same issue I had when I opened up my first credit card. I first was scared to spend any money on it. Slowly I got accustomed to it and started putting a larger amount on the card. $400 turned into $500 then over $700. I spent $1,877.76 just in my first semester as a sophomore. I would add more things to my shopping cart I didn't need. I told myself that I had enough money. I can always make more money and then it will only be $300 a month instead of $700. Quite a few of my purchases came from the vending machines on campus. Especially during finals, I was spending $6-10 a day on pops and energy drinks. Because I could just swipe the card I didn't think about the actual cost. I finally quit when I had to pay up the $717.05 from my account.
Now I did all the steps. I had autopay on and I never spent more than was in my account. I rationalized all my purchases like I needed an energy drink this morning to study for my test. I have to have a drink before I study. Shit like that. Now when I switched to cash and my debit card things changed. Cash hurts when you spend it. I know people say they spend more with cash than a credit card because it is already out of the bank. But I don't think that is true. Also, the hassle of going to the bank for cash and making sure you have enough is a good thing. That inconvenience is stopping you from spending. I also understand people talk about self-discipline and responsibility a lot. Self-discipline doesn't work you fall to the level of your systems. It has been scientifically proven you spend more with cards. If you think you are above this then you are wrong! If your spouse leaves donuts on the table then one day you will eat the donuts! Your financial system should cause friction stopping you from spending while reducing friction to save money. You need to create new habits that support your financial goals.
🔒 Increasing Friction On Spending
Through your habits, you want to increase your friction on spending. This is especially true in college as almost every student is poor. You will survive without a credit card. Numerous students get through the day without a car. There are many more that go hungry and if you're worried about a credit card the train of life hasn't hit you yet. Instead, you should focus on other steps to improve your financial system. Your savings should be the biggest contributor to your purchases. A person who buys a Ferrari with a credit card is rich but a person who buys a Ferrari with cash is richer. If you have to put it on a credit card then you can't afford it. If you also can't give up the money right away for the purchase then you can't afford it. I would have spent much less if I had to tangibly see my money disappear.
🔧 Other Tools Instead
To improve your financial system and build better habits I recommend students open a budgeting account with YNAB. You can get a free year of the budgeting app if you're a student! Now there are other options like using a cash envelope system. If you prefer this idea go ahead. For me, I use YNAB, and my debit card attached to my bank. One might say that how do you purchase items online? You may have heard that using a debit card is risky online. You have the same protections with a debit card as you do with a credit card. No, you do not just lose all your money and neither is it just up to the bank's decision. It also doesn't matter if it was a PIN transaction or put on credit. Almost all debit cards offer a zero-liability policy. It means you are not responsible for unauthorized charges if reported in time. From the Federal Trade Commission, they state "Your maximum loss is 0 before any unauthorized charges are made. Within two business days after you learn about the loss or theft your maximum loss is $50. In 60 calendar days then your maximum loss is $500. After 60 days all the money taken from your account could be your maximum loss." (Federal Trade Commission 2022). I am not afraid of this because I get alerts from my bank app when my card is charged. Most people have this same system set up and you should too. I have used my card online without any issues for years. Now here is the thing. A credit card is going to make doing some things easier like renting a hotel, getting an auto loan, and in some cases renting an apartment. There are many workarounds for these but I would ask yourself should you spend that money? A part of creating friction for spending is coming to terms with your spending. The system is working if you have to use more effort to buy something. It should make you think about your purchase and if you really need it.
📈 Reducing Friction on Saving
Now the next step I want to focus on is saving. Most people are not saving enough. I've talked with several students who have less than $1000 in their bank account. The first step no matter your financial situation is an emergency fund. While emergencies may not be predictable, they are inevitable. If you have a car, it will need repairs. If you live in a place, appliances will break down. If you’re human, you’ll need medical care at some point. So, rather than treating these expenses as unpredictable "emergencies," it’s more productive to recognize them as planned for unanticipated costs. A rule of thumb is 3-6 months of emergency savings. College students should have $1,000-$2,500 saved for an emergency. This should be a line item in your budget. $1,000 divided by 6 months is $167 (166.66 rounded up). Divided by 182 days that is .91 ¢. It is less than a dollar a day. Once you hit this if any emergency pops up always start saving to replace the original amount. Instead of manually pulling out the money and transferring it to a high-yield savings account (HYSA) set up an automatic transfer. Essentially a portion of your money from work or your bank account is transfered every month into your HYSA. You don't have to do anything besides setting up the system. Now open up a new HYSA with your bank or keep it in a separate bank to prevent temptation from spending it. I would use an online HYSA with a high interest rate generally around 5%. This is what I have done. I would also recommend keeping a portion of your emergency savings in cash preferably in a safe. I advise keeping $500 of cash stashed away. Don't leave yourself with a single point of failure, especially in an emergency. Once you have this set up then start another automatic transfer for a different savings goal. For me, $200 a month is sent to my Roth IRA and buys an index fund. For other people, it could be putting $100 every month for a new car or towards your student debt.
💰 Reflecting On Your Finances
A study was done by Steinberg, Dori M et al. which found that people who weight themselves everyday lost more weight than those that didn't (Steinberg, Dori M et al. 2014). Simply by reflecting daily on their weight and confronting the issue they were able to loss more weight without cutting calories or exercising more. We can do the same thing but financially by looking at your bank account(s) everyday. I do this habit in the morning I check my bank account seeing what I've spent money on and what I have earned. This is a powerful habit that I encourage you to pick up as well. Now some people have nothing in their accounts. For example you looked at your account in the morning and you weren't to happy with the amount of money. So when you go to the store you keep that in mind and spend less money. This exact situation has happened to me. Now one of the students I mentor had $8 in his account. Sometimes it can be embarrassing our financial situation. But I would still recommend checking your account even if your embarrassed. Soon your going to get tired of being poor and change your situation. You want to go from victim to victor mentality. Understanding that even if your were born into poverty. While not your fault it is still your problem to fix.
⚠️ Societal Cost of Credit Cards
Now I understand people will say I am not responsible for those who make their own bed. If I can use credit cards to give myself a financial advantage then why shouldn't I? Because people cannot manage their money doesn't mean I should suffer. This survival of the fittest mentality is number one terrible. You should care for your brothers and sisters. Often it is not because they are stupid but because they were never taught. You could have been in the same situation if you were born into a different family or your circumstances changed. 1-2% cashback never made anyone wealthy but it has cursed millions of people. Do you support industries such as tobacco, alcohol, and gambling which have destroyed millions of families? These companies prey on the vulnerable. All the interest credit card companies have snatched up from people who likely thought the same. People think they are making money or that it is free. Nothing is free in this world. That is why the interest rate is so high the entire time $500 sits on your balance you are at risk of losing your job. Then you can't pay the bills or the credit card which causes more problems. It is an unnecessary risk that thousands of Americans fall into each week. But of course that could never happen to you.
PS: To those who are financially frugal looking over every transaction, tracking points, churning cards. The hardcore warriors I simply must ask is it worth it? A system should be easy to follow. Simplicity is the result of intelligence. Complicating your financial life with these things can be better spent on actually making money. By increasing your income through working on a business, getting raises, a new job, etc. You can only save so much before you cut to the bone.
Closing Notes
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Lastly, we will end on the quote of the day.
“Content makes poor men rich; discontentment makes rich men poor.” — Ben Franklin
until next week,
Crayton Koranda
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