The banks gear up for their annual marketing blitz for students. The charm offensive usually includes freebies or cash rewards when you sign up for a student credit card or student loan.
It’s easy to see what’s in store for the banks: new customers with whom they can build (ideally) a lifelong relationship.
But for students?
Don’t get me wrong, both credit cards and lines of credit can come in handy as a student. For one, building a credit history early is more important than ever in today’s highly competitive rental market. Toronto landlords, for example, routinely ask about the creditworthiness of potential tenants. Not having a credit history can make apartment hunting even more difficult.
That said, students should proceed with caution. Here are three tips to help you decide if and what to sign up for:
Forget the rewards. If your budget is tight, you probably won’t be spending enough to make the points program worthwhile. At this stage, just focus on developing the habit of paying out your balance in full and on time each month.
Choose no fees and lower interest rates. Instead of chasing points, choose a card with no annual fees and a lower interest rate. Ideally, you wouldn’t have to worry about paying interest because your payments are always on time, but… life happens.
know your debt When deciding between a student line of credit and government student loans, do a full comparison. Lines of credit often have a lower interest rate, but there are more pros and cons to consider.
Credit lines are flexible: like a credit card, you borrow only what you need and when you pay it back, you make more room to borrow. However, you will typically have to pay at least the interest on what you borrow while you are in school (you can often continue to make interest-only payments for six to 12 months after graduation).
In contrast, with government student loans, you don’t have to worry about payments while keeping your nose in the books. And after you graduate, you also get a six-month payment-free grace period – although interest is sometimes accrued during this time.
If your income is low enough, you’re also eligible for repayment assistance, an option not available with a line of credit. Finally, you get a tax credit on the interest you pay on your government student loans. With a line of credit, you forego this tax benefit.
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