Friday 1 February 2008

The Voice - Dear Consumer's Voice

Dear Consumer's Voice

Do you think it is advisable for University or College students to apply for credit cards or store cards? I am just wondering if they know how these things work and the impact they can have on their lives.

Great question.

The answer is that it depends. It depends on the amount of self-control you have, the store you get the card from and what you end up doing with it.

Students are at a very dangerous point in their lives. Often for the very first time they are in control of their money. Even the most hard-headed student is going to be tempted by what all sorts of people offer them. Banks tend to be rather sensible with students but other institutions can be less scrupulous. They are going to offer store cards and credit purchase schemes that offer students the ability to get something today rather than when they can actually afford it. Unfortunately some stores are not going to be as open and honest as they should be.

Often interest charges can be astronomical. We’ve seen interests rates on store credit schemes as high as 390% per year. Then are the hidden costs like compulsory insurance, delivery charges and arrangement fees. All contribute towards the customer paying much more than they can afford.

If, and only if, the conditions are reasonable, the interest charged is low and there are no ridiculous hidden charges then perhaps store cards can be a good idea but this is a pretty rare situation.

Our general advice for students is the same as we give to everyone else. Avoid credit whenever you can. Buy things second hand if you really need them. Live within your means. If you really must borrow, then borrow from the most affordable and reasonable lenders in the market. Your parents.

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