How to Manage Credit Card Debt as a College Student

by Jalen & Sarah Bromley

When you’re in college, your money has to work hard. As well as covering your everyday living expenses, there are tuition fees and other educational costs to consider — and all while you’re supposed to be spending a considerable chunk of your time studying rather than earning. It’s no surprise that over 42% of college students have credit card debt.

Facing credit card debt is a scary place to be, but managing the situation is possible. To help, we’ll cover how credits work, how to create a plan to repay your debt, and ways to avoid falling into the same situation in the future.

How credit cards work

Every credit card has a credit limit, which is the maximum amount you can spend. Each month, you must cover the minimum payment toward your total credit card balance to avoid significant damage to your credit history. 

However, the credit card provider will charge interest if you fail to repay the total amount you borrowed over the billing cycle (even if you cover the minimum payment). As a result, the following month, you will owe even more than you originally borrowed. This is how many people rack up credit card debt.

There are various benefits of credit cards:

  • Better fraud protection than other payment methods 
  • Way to build credit history for the future
  • Cashflow management when waiting for a paycheck, allowance, etc
  • Access to rewards and perks (such as cashback)

But there are also some risks:

  • Temptation to overspend 
  • High interest rates can lead to a debt spiral 
  • Damage to credit score has a longstanding impact 
  • Possibility of fees like late payment charges 

How to assess your debt

If you’ve already started accumulating credit card debt, the worst thing you can do is bury your head in the sand. Instead, here’s how to take control of the situation and assess your debt.

Calculate your credit card debt

The first step is always to get a number so you know exactly what you’re dealing with. This can be an emotionally difficult step if you feel ashamed of the debt you’ve accumulated, but you may feel better once you know what you’re dealing with.

If you only have one credit card, this is simple enough. You just need to get hold of your latest credit card statement to find your current balance. Most credit card providers will give you access to your statements through your online account.

For those of you with multiple credit cards, some math will be involved. You’ll have to add up your balances for each credit card you have debt on.

Work out your minimum monthly payments 

The next step is to work out what your monthly payments are, which is also found in your credit card statements. Note this down, as it’s the absolute minimum you need to repay each month.

However, your minimum payment is exactly that: a minimum payment. You shouldn’t aim to keep your payments to only this amount unless it’s all you can afford. Otherwise, you’ll never get closer to paying your debt in full and will only be paying your interest each month.

We’ll discuss how to set your payment goals shortly. 

Note down your APR

You’ll need to know your annual percentage rate (APR) to work out your repayment plan (which we’ll get to shortly). This is the interest the credit card company charges you, so it determines how quickly your debt will accumulate.

APR is slightly different from a simple interest rate because it accounts for all other fees you’ll incur and showcases how much you’ll pay over the year (whereas an interest rate can be calculated over any period). This means the APR is the relevant figure for determining how much you’re really paying toward your debt.

Consider other debts too

Before you’re ready to strategize, you should also consider any other debt you have. This will affect how quickly you can afford to pay down your credit card balances. 

Common debt types include:

  • Auto loans
  • Medical debt
  • Other personal loans 
  • Payday loans

You don’t need to account for student loan debt while you’re still at college.

How to create a repayment plan

Once you know exactly how much you owe, you can start to build up a strategy for paying it back.

Set goals

At this point, you should know your total credit card balances, your minimum monthly payments, and your APR. So, it’s time to make a plan of action.

Figure out how much you can afford to put toward your debt each month, and then determine how long it would take you to pay off the debt in full. This will require looking at how much you spend each month and how much you bring in — everything left after covering the basics should be going toward your debt.

You may be able to put more toward your debt repayment by tidying up your budget, which we’ll touch on shortly.

There are various free credit card payoff calculators available online, such as this one from Experian. Just input your APR and monthly payment, and it will tell you when you’ll be debt-free. You can even add multiple credit cards.

Prioritize high-interest debt

If all your debt is from a single credit card, feel free to skip to the next section. But if you have multiple sources of debt, figuring out your repayment plan will be trickier. You’ll need to figure out how much of your monthly “debt budget” to allocate to each debt source.

Some people make the mistake of splitting their money evenly between all debt sources, but this is rarely the most effective option.

One method is the debt snowball method, which involves tackling your card with the lowest balance first. This has psychological appeal for some people, since the process of completing paying off a debt balance provides motivation.

However, the debt avalanche method makes more financial sense. In this case, you’ll prioritize the debt with the highest APR first, because it has the strongest negative impact on your finances. In this case, you’ll dedicate all the money you have left over after covering your minimum payments toward the debt with the highest APR.

Debt consolidation options 

If you have multiple credit cards or debt sources and find it confusing to keep track, you may want to consider a debt consolidation loan. This involves combining everything into a single loan. 

By simplifying your loans, you’ll only have one APR, one monthly payment, and one debt plan to consider. In many cases, it’s also a way to obtain a lower APR (and therefore lower monthly payments and a faster debt-free status).

However, this outcome isn’t a guarantee. If you have a poor credit history due to debt spiraling out of control, you could get offered a higher APR for a debt consolidation loan. 

Create a budget

As mentioned, you need to understand your income and expenses to understand how much you can dedicate to your monthly debt payments. The best way to do this is by creating a budget. 

We have a more detailed guide to budgeting, but the lowdown is as follows:

  1. Count all your income sources to work out how much you’re bringing in each month
  2. Check your bank account statements to see how much you spend each month
  3. Put this information into a budgeting app or a tool like Excel
  4. Look for ways to tweak your spending to increase your monthly debt payments 

Seek out help 

The steps outlined above will work fine if you have enough disposable income to cover all your monthly minimum payments and a good chunk left over to help you pay down the debt. 

But life as a student often doesn’t involve much disposable income. What if you have nothing left to dedicate to these uses?

There are other options, such as:

  • Balance transfer credit cards with 0% APR for a promotional period
  • Debt charities to help you explore other options 
  • Calling your credit card company to negotiate a lower APR or ask for a credit card hardship program 

Debt reduction strategies

On the surface, it might seem like there’s only one way to approach debt repayment: By paying as much as possible as quickly as possible.

However, you can take two main approaches: Cutting your expenses and boosting your income.

Cut expenses 

Unless you’re already so frugal that there’s nothing left to tweak in your budget, the simplest way to increase your monthly payments is generally to reduce your spending. And even if you think you’re financially savvy, you might be in for a shock once you look at how much you’re really spending. 

Go through your bank statements from the last six months and look for areas where there’s room to cut down your spending. Also, check your grocery store receipts and see if you can replace any items with cheaper alternatives or — or remove them entirely.

You don’t need to deprive yourself of all luxuries, but sacrificing most of them temporarily while you pay off your credit card debt is worth considering. 

Increase income

As a student, you may have limited opportunities to increase your income compared to those working full-time. But it’s still possible to do so!

If you have a few hours to spare in the evening or weekend or free time during vacations, using them to earn money to put toward your debt will pay dividends in the future. 

A few side hustle and job ideas include:

  • Freelancing (e.g., social media management or copywriting)
  • Tutoring 
  • Delivery driving or other gig economy work
  • Participating in research studies at your college
  • Babysitting

If you don’t have time for a job, you could also consider selling old textbooks or phones online. A few hundred dollars can make a big difference.

How to avoid future debt

Once you’re out of debt, you’ll need to put just as much effort into staying that way as you did into climbing out of debt initially. Here are some of the most effective ways to do that.

Responsible credit card use 

Just because you’ve struggled with debt once, it doesn’t mean you need to cut up all your credit cards and throw them in the trash can immediately. Responsible credit card use can be a way to access the benefits of credit cards outlined earlier without getting into debt.

You’ll need to ensure that you never spend more than you can afford to and always pay your balance before the due date. We’re talking about your entire balance and not just your minimum payment — this will ensure you don’t accrue interest, which is where many people run into trouble. 

The best way to guarantee this is by setting up automatic payments to cover your balances. However, if you just use your credit card for small expenses, essentially treating it like your debit card, you could avoid all the headache instead.

Side note: I’m proud to say that I’ve never wasted a cent on paying interest charges for any of my credit cards, and that’s because I never spend money that’s not in my bank account.

Emergency fund

An emergency fund is a pot of money to save in advance and set aside for when financial emergencies crop up. This way, the next time you need to replace your car tires, you can dip into your emergency fund instead of going into debt. 

The prospect of setting aside a few thousand dollars to an emergency fund might seem out of reach if you’re currently struggling to cough up this amount to pay down your debt, but it’s worth working toward as a long-term goal.

Campus financial aid

It might seem like the odds are stacked against you as a student in debt, but there is the odd perk here and there. One initiative you may be able to take advantage of is financial aid from your college.

Many universities offer emergency student loans to students undergoing financial hardship, such as a family death or a medical emergency. To be eligible, you’ll need to be able to prove your financial difficulties are genuine. These loans are typically quite low in value — around $500 — but unlike private loans, they don’t tend to charge interest. 

Your college financial aid office may also be able to explore other options for accessing additional financial help. It’s always worth asking!

Conquer that college debt

The sooner you take control of your debt as a college student, the more chance you’ll have of enjoying your debt-free life as a graduate. You may feel overwhelmed now, but once you’ve assessed your debt and drawn up goals to tackle it, such as reducing your spending or finding a second job, you may find that paying the debt off is more achievable than you realized.

To help you along your debt management journey as a student and keep financially healthy well into the future, stick around on Frugal Student. We share tips and tricks on financial optimization to keep you motivated and on track.

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