Is an Emergency Fund Necessary?

This website is for entertainment and educational purposes only. Material shared on this blog does not constitute financial advice nor is it offered as such. Therefore, The Simple Dollar assumes no legal liability for the completeness, accuracy, or suitability of the information provided by its authors.Readers will also note that The Simple Dollar maintains financial relationships with certain third party merchants. If readers access and utilize the services of one of these affiliates through a link on the blog, The Simple Dollar may be compensated for the referral.Please read the blog’s policies on privacy and image-use.And always consult a locally licensed insurance agent, financial adviser or certified attorney before making any financial decisions.

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I’m a pretty big advocate for emergency funds – cash stowed away in a savings account for a rainy day. Establishing an emergency fund is one of the first things Sarah and I did during our financial turnaround and that emergency fund took care of several difficulties we faced during the first year or so of our financial turnaround.

My belief is in line with that of Dave Ramsey: the first move anyone should make when they’re facing the reality of their debts for the first time is to save up a $1,000 emergency fund. Later on, when you have high-interest debts out of the way, a larger emergency fund is even better.

Even so, there are arguments out there against emergency funds, stating that they’re not a particularly good idea. Those arguments usually rest on three key points.

First, emergency funds stowed away in savings accounts do not earn a good return. Savings accounts earn somewhere between 0.5% and 1.5%, depending on your bank. You can earn a much stronger long-term return in other investments, such as the stock market which historically has returned somewhere around 7%. You would be foolish to make cash savings a significant part of your investment portfolio.

Second, most people have credit available to them, so they should use that in an emergency. If you’re facing a situation that you can’t cover with cash, you could simply use the existing credit on a credit card to cover it. After that, you can pay off the credit card quickly.

Third, emergency funds are a terrible idea if you have high interest debt. A debt sitting at 20% is costing you far more than the savings account is earning for you. You should pay off the debt first.

Here’s my take on each of these points.

First, everything you invest your money in excels in two of three areas and fails in the third one. An investment is either low risk, has a high long term return, or it’s highly liquid (meaning you can get your money out very quickly). You can choose two of those things with almost every investment.

A savings account provides the two things that you’re really looking for in a time of personal crisis – it’s low risk and it’s liquid. The high return is much less important because you shouldn’t be keeping a significant portion of your net worth in an emergency fund. It’s not an investment – it’s a buffer against an emergency.

Right now, our emergency fund makes up only a few percentage points of our net worth. Even when we first started our financial turnaround, we only established a $1,000 emergency fund, which was still only a small fraction of the total value of our assets.

An emergency fund is simply a sacrifice of returns on a small portion of your money so that you have something on hand that’s very liquid and very low risk. It’s not meant as a major part of your retirement savings or your investment strategy. It’s meant as a buffer against things that might happen to you.

Second, trusting in a line of credit means trusting completely in the discretion of a bank. It relies on your credit report remaining clean – untimely identity theft can wreck your credit report for a while and leave you without that credit. It also relies on the business policy of the bank remaining constant, which isn’t a promise – many banks have lowered credit limits over the past several years on large numbers of their customers.

Another problem with this angle is that using a credit card has a strong likelihood of meaning that you’re going to be paying a high interest rate when you pay it back. Yes, there are many emergencies where you’ll be able to pay it all back before the interest kicks in, but what about unemployment, for example? The average duration of unemployment these days is about 36 weeks. It’s pretty likely that you’ll accumulate a nice pile of debt and interest during that kind of timeframe – and, ideally, the bank won’t notice and cancel your line of credit.

A further problem is that many Americans simply don’t have adequate credit to rely on the banks in an emergency. According to this report, 33 million Americans have insufficient information on their credit report to generate a credit score, 24 million more Americans have no credit history whatsoever, and another 61 million Americans have a subprime credit score. That’s 118 million Americans who have insufficient credit with which to obtain a credit card. These are not people who can safely rely on the bank extending sufficient credit to them.

Beyond that, simply having a good credit score isn’t a guarantee that your credit may not fall during a time of crisis. 72% of Americans live paycheck to paycheck – as soon as their paycheck disappears for even a week, bills aren’t getting paid and their credit starts to drop pretty quickly thereafter. This isn’t really a group that should rely on banks extending credit, either.

Finally, repaying debt is more than just a math problem. To start off the explanation here, I’ll quote Dave Ramsey from The Total Money Makeover , page 105:

“Since I hate debt so much, people often ask why we don’t start with the debt. I used to do that when I first started teaching and counseling, but I discovered that people would stop their whole Total Money Makeover because of an emergency – they felt guilty that they had to stop debt-reducing to survive. It’s like stopping your whole fitness program because you get a sore knee from a fall when running; you’ll find any excuse will do. The alternator on the car would go out, and that $300 repair ruined the whole plan because the purchase had to go on a credit card since there was no emergency fund. If you use debt after swearing off it, you lose the momentum to keep going.”

When you’re first trying to do something to improve your life, it’s incredibly hard. It’s very easy to be pessimistic about it and be skeptical that things can ever really change. When you hit that first roadblock, it can be incredibly tempting to just simply quit. I’ve seen a lot of people – including myself – abandon goals at this point.

It is well worth sacrificing a relatively small amount of financial gain in the short term to significantly decrease the chance for roadblocks to stand in your way over the longer term.

Once you’re past that point – you’ve paid off your high interest debts and you’re saving and investing for big future goals – good financial decision-making can feel as easy as riding a bicycle. However, a person who is just taking the first steps to a turnaround is much like a child learning to ride for the first time, and the emergency fund is like a bike helmet and training wheels. Sure, they might get going a little faster without them if everything goes perfectly, but life isn’t perfect. We all stumble. It’s a lot easier to get back up and jump in the saddle if you’ve got something in place to cushion your fall.

During that period where you’re saving up a $1,000 emergency fund, you are absolutely causing yourself to build up more interest on your credit card because you’re not paying it off, but you’re doing so to prepare yourself for success in paying it off. What you’re doing is spending a few moments to strap on your bike helmet before you jump on board. Sure, you probably won’t be the first one to the end of the block, but you’re also going to be far less likely to give up when you fall off your bike because the mistake won’t hurt nearly as much.

A final point: most of the arguments here don’t mean anything to you if you don’t really believe emergencies can happen to you. Different people have different levels of safety nets in their life. Some people can rely on their families for financial support no matter the situation. Others have an employment background and connections that are basically infallible. Still others receive a very high income combined with at least a basic understanding that they need to save or invest at least a little of it. For those people, a $1,000 emergency fund is going to seem rather unimportant.

On the other hand, all I have to do is look back at some of the experiences of my own childhood to see how an emergency fund can make a tremendous difference. My father was often laid off from his job and during those times an emergency fund sustained our family. My old man diligently put aside a little bit of money directly from each of his checks into a credit union and we used that credit union when times were tough. The day-to-day reality of my parents’ life didn’t involve investing in the stock market. It involved making sure food was on the table and handling many little emergencies by the skin of their teeth.

Like it or not, half of Americans live in what is considered a low-income situation and, as I stated earlier, 72% of Americans live paycheck to paycheck. These are people that, in many ways, share the experience of the household of my childhood. Turning the ship around isn’t going to be easy for them. Putting on a helmet before they hop on that bike is going to make a big difference.

If you’re figuring out what your first step should be in terms of turning around your debt situation, my recommendation – and Dave Ramsey’s, too – is to have a $1,000 emergency fund. Consider it your helmet for the bicycle you’re about to learn to ride.

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Net Worth and Pleasure

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In a post a few days ago, I made an offhand comment about how I didn’t really receive personal pleasure from seeing my net worth increase, though I once did. A few people emailed me on that subject, so I thought I’d clarify what I meant.

When I first began to overcome my personal finance mistakes, I found that calculating my net worth and looking at the change from month to month was incredibly powerful. It was a single number that provided “proof” that I was making better decisions than I was making before.

An increase in net worth meant that I was unquestionably spending less than what I earned, which is the key to personal finance success. An increase in net worth meant that all of the hard day-to-day choices I was making were actually adding up to something big.

It was exhilarating. Each time I calculated that number, I could clearly see the impact that my choices were having even if they weren’t really evident in my day-to-day life.

Over the ensuing years, however, things changed in my life. I changed careers and moved in a self-employment direction. We bought a house and had two more children. All of our debts disappeared and we started building a nice nest egg.

In other words, I began to really see the impact that our financial choices are having on our day-to-day life. If we hadn’t turned our finances around, I would not be self-employed right now. I wouldn’t be able to be sitting there waiting when my children come home off the bus. We wouldn’t be living in a nice house with enough space for a home office. I would be feeling stress from things as simple as checking the mail.

I don’t have to look very far to see how our good financial choices changed my life.

So, let’s look at those situations side-by-side. When we first started our financial turnaround, I didn’t see those changes in my day-to-day life. I was still working the same job, living in the same place, driving the same automobile.

I didn’t have the milestones in my life to demonstrate the changes brought about by our financial choices.

Today, things are different. I have lots of things in my life that have only happened because of our financial choices. Being financially stable opened the door to the house we own. Being financially stable opened the door to a career change for me, one that lets me help my children get ready for school in the mornings and be there for them when they get home, which is incredibly important for me.

I don’t need a number to show me those things.

It’s those life milestones that show me the incredible positive impact that good personal finance choices have made in my life. Every single day, my life shows me what I’ve accomplished and why I need to keep my eye on the ball.

At first, I needed that number to see that I was accomplishing something. Now? I don’t need that number. I just need to look around my life.

That’s the reward for sticking with personal finance improvement. You eventually begin to see how it affects your life in a lot of ways and when you recognize that it’s your hard work that made it happen, it inspires you to keep going.

I still figure up my net worth every once in a while, but it’s mostly an exercise to ensure that I’m making smart financial decisions. The day-to-day inspiration that I used to get from that number now comes from the realities of my life – and that’s the result of pushing through those years where I was working hard to improve things but I wasn’t seeing any direct reward.

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Finding Your Bliss Station

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Our life has become so economic and practical in its orientation that, as you get older, the claims of the moment upon you are so great, you hardly know where [...] you are, or what it is you intended. You are always doing something that is required of you. Where is your bliss station? You have to try to find it. Get a phonograph and put on the music that you really love, even if it’s corny music that nobody else respects. – Joseph Campbell

I love playing tabletop games. There is nothing that makes me happier than sitting around a table with friends new and old, playing a game together. The puzzle of the game makes my brain cells work a little, but the social interaction with the people around the table makes it sublime. For me, that’s one of my “bliss stations.” It really brings me joy.

I also getting lost in a book. I love reading nonfiction, where my mind spins around new ideas, but I also love speculative fiction, where my imagination runs wild. I love getting so deep into a book that the time just disappears. That’s another “bliss station” for me.

Another one? I actually really like getting lost in a work project, getting into the zone where the hours fly by. I absolutely love how I feel when I snap back to attention, realize that time has passed, and notice how much I’ve accomplished. That’s yet another “bliss station” for me.

The time I spend with my children is another one, as is the time spent doing pretty much anything with my wife. Sometimes, I get them when I get lost in a powerful piece of music, or when something makes me laugh deeply.

“Bliss moments” are simply those moments and situations where many of the negative parts of your life just float into the background, leaving you simply feeling great and enjoying the moment.

I believe that “bliss moments,” however you might achieve them, are the true highlights of our life. They make our day-to-day existence worthwhile. I know that they certainly make my own life worthwhile.

There was a time in my life where I felt that I was achieving “bliss moments” when I would walk out of a store with an armload of books or a new gadget or when I was trying out a new restaurant. In those moments, I would feel incredibly good about things, but those moments came with a price.

I felt empty and sad whenever I’d examine the state of my finances and get a glimpse that I was heading in the wrong direction. I’d feel distraught when I’d look at the bills and not know how I was going to pay them.

Here’s the truth: if you have to spend money to achieve a “bliss moment,” then it’s a false moment.

A bliss moment, on its own, doesn’t steal from the joy of other parts of your life. It brings joy without ever demanding a payment in return. It doesn’t give you stress at other moments in your life. It takes away that stress for a little bit and makes the stress you do have easier to handle without adding more to the pile. A “bliss moment” shouldn’t require hard choices and sacrifice later on.

Here’s a big secret that I’ve learned about personal finance and life: the more “bliss moments” you can find in your life that don’t require you to spend money, the better off you’ll be.

It’s because of that realization that I constantly seek out free sources of “bliss moments” – or at least sources that incur only the slightest additional expense. I go to community events, particularly those that are free and overlap with my interests, such as community game nights and free concerts. I consciously set aside blocks of time to allow myself to fall into the “flow” of working and, as often as I can, the “flow” of a good book. I also set aside blocks to spend specifically with my children.

These steps cost me very little in terms of my money, but they’re all powerful sources of “bliss moments,” and it’s those little moments that bring so much deep joy into my life. With those moments at hand, the desire to have more stuff falls dramatically. I don’t need “stuff” to have these moments.

Seek out the bliss moments in your life, especially the free ones. Find ways to bring them into your life on a regular basis. I’ve found nothing better in terms of making my life feel whole and making me realize that I don’t really need things or expensive experiences to enjoy a tremendous life.

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Do the Hard Things First

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It’s a pretty common principle of time management. When you have a list of tasks to do, choose the one that’s hardest and do that first. That way, you tackle it with the most energy and the freshest mind.

What’s interesting is that many well-organized people use this principle quite well in the short term, but then completely discard it when looking at the long term. When they figure out today’s to-do list, they’ll choose the hard task, but when they look at plans that cover years, they avoid the hard task.

The easiest example I can think of for this phenomenon is retirement savings. Many, many people, when they’re first given the chance to save for retirement, choose not to save anything at all. They choose the easiest part first – not saving anything at all – and save the hardest part for later – socking away 10% or 15% for retirement.

As many as 40% of households near retirement age have no savings at all for retirement – and the numbers get even worse when you look at younger folks.

Your long term goals work almost exactly the same as your to-do list for today. You have more energy and more mental capacity now than you will have in the future, so you should tackle the hardest parts of your goal now, not later.

Retirement savings? Kick that rate up high now while you’re employed and have youth on your side and a strong ability to find a new job if needed.

Debt repayment? The more extra payments you throw at it right now, the less interest you’ll pay over the lifetime of the loan.

Insurance? A plan to get life insurance or health insurance in a few years doesn’t help you if something goes wrong in the next few months.

Yes, it’s hard, especially when you’re younger and your income level is lower.

However, youth has tremendous advantages. You have a much greater capacity to be flexible with your life. You have more energy and more career opportunities. You also have a much longer time horizon, meaning that you’ll have much more time on the other side of that hump.

What can you do to get started? Clean out your closet and sell your unused stuff. Choose the smaller apartment. Make some harder choices today like eating a cheap dinner at home.

Want a specific example? Try out the 52 week money challenge, but knock out all of the highest numbers first – or, better yet, do the entire thing backwards, starting with the $52 week. It’s pretty sweet when you’re finishing up that project and the last few weeks only require you to sock away a few bucks.

You are never younger and fuller of energy and motivation and ability to solve life’s problems than you are right now. Doesn’t it make sense to step up to the plate and knock down some of the more challenging parts of your goals?

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Building an Electronic Price Book

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When Sarah and I were reassessing our finances, we looked around for as many tips as possible on how to save money. One of the best resources we discovered was The Complete Tightwad Gazette .

One of the best suggestions that we found in the book was to use a logical system to determine where the best prices were on the grocery items that you commonly buy. Dacyczyn’s process for doing this was to create a listing of those goods along with columns that indicated the price of those goods at local grocers. She called this a price book, and it wasn’t long before Sarah and I implemented a price book ourselves.

At first, I kept this book in a three ring binder. It consisted of about four sheets of paper, front and back, and I tried to leave plenty of space for updates in each rectangle. Unsurprisingly, it didn’t take too long for the sheets to get filled up.

Our next step was to just create a template in Microsoft Word. It was simply a large table with seven columns – the first column contained the item and the other six columns contained the price on that item at the six different stores we compared. Again, I left space for manual corrections.

This worked well for several years. For a while, I included the sheets in a “coupon binder” to make grocery shopping easier.

Eventually, though, I stopped taking the binder with me because I had a good sense of the respective prices. Of course, after a while of not doing the price book, I started to lose perspective on the comparative prices. Stores tend to raise and lower prices fairly often, even to the point of changing how the stores rank on many products. Since the change is often gradual (usually, it’s due to a store gradually raising prices), it’s often hard to notice how big the change is over time.

That’s why, a few weeks ago, I brought back the price book, in electronic form. Rather than making a price book in a word processing program or by hand, I’m doing the whole thing electronically.

Here’s how it works. I simply recreated my old price book in Google Docs. I can access that price book document from my phone, so I can update it really easily.

It’s pretty easy to do. Just create a new document within Google Docs, add a seven or eight column table to the whole thing, and start adding items to that table in the first column. Each of the other columns should represent a store that you shop at with some regularity.

What items do you include in the table? Mine has about forty items – the items I buy most frequently. A gallon of milk. A pound of bananas. A loaf of the whole grain bread that we like. A bag of frozen vegetables. A pound of spinach. You get the idea. The list should just include the items you buy most frequently.

The next time you go to that store, just fill out the price book with the non-sale prices of all of the items. Since you already have the list of your most common items, you can use a phone or a tablet to enter them directly into this document (you can also use paper and transfer it over later if you prefer that method). Since most of those items are already on your grocery list, it’s not that much extra work.

At the bottom of the table, I have a Total line that adds up the prices for each column. When I re-did my price book recently, I was surprised to find that the order of the stores had changed substantially and that all of the stores were actually closer together than I remembered. The most expensive store was no longer the most expensive one (Hy-Vee), for starters.

The biggest impact this experiment had on me was that it made me re-think the items I buy at Hy-Vee and Fareway, respectively. My general assumption that Fareway was less expensive was still correct, but the items where Hy-Vee matches or beats Fareway’s prices had changed. I usually use both grocery stores on a full shopping trip, but now I know to buy a somewhat different set of items when I stop at Fareway. In other words, the electronic price book is already saving me money.

How often will I update it now? For the moment, it’s fun, so I’ve been checking it every time. Once the “new” dies off, I’ll probably try to update it once a month – I’ll add a note to my calendar to remind me to “add to the price book” when I shop. Now that it’s electronic, though, updating the book became much easier than before.

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Shopping and Tunnel Vision

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One feature that Sarah and I have decided to add to our dream home is a “den” of sorts. This den would serve as a game room and a party room of sorts, plus it would be a place to house our board game collection, our book collection, and our remaining movie collection.

As I’ve mentioned before, we have a pretty detailed idea of what kind of house we’re going to build, so we’ve actually been thinking about details like how to furnish the house. What will we take from our current home? What will we need to add to the new home?

Any game room / party room will need at least one solid table and we currently don’t have any that will work well for that purpose (we could use our main dining table, but we intend to continue to use that for dining and if we repurposed it, we’d be buying a new dining table). So, this has left me looking for a good table for a game room.

I want a sturdy table that will last for a very long time, meaning I want one made of solid wood that’s well constructed. I’d also like the table to have some features that make it work well for tabletop games – it shouldn’t be too far across the table, but it needs to be big enough to hold a sprawling game. Easy access to beverages without them being right on the table would be very nice, too.

In looking around for ideas for this, several friends pointed me toward this company. I had the chance to examine several of their tables recently and I fell in love. Some of their products are basically perfect for what I’m looking for.

The price tag, though? Painful is an understatement.

Here’s where things get tricky. It would be really, really easy to get “tunnel vision” at this point and begin to focus obsessively on one of those tables. I could keep gazing at their website, imagining one of those tables in my dream home. I’d add in details – friends sitting around it, enjoying each other’s company while playing a game.

Eventually, I’d reach a point where the desire would become overwhelming and I’d decide that I must have this table. At that point, I’d find myself clicking the “buy” button, deciding that I’d figure out how to pay for it later.

Why would I envision that? I used to do it all the time – and I know from talking to readers and reading other articles that many, many people do that very thing. We get caught up in something we perceive as a need, we find the “perfect” solution for it even though that solution is really expensive, and then we talk ourselves into buying it.

Sure, this is another “want versus need” situation, but it’s worse than that. Once that “perfect” solution is found, tunnel vision will often set in and other solutions aren’t even seen, let alone considered.

How do you stop that?

For me, the first method of breaking the cycle is simple. Can I find the same product for a better price elsewhere? Even if the item is basically one-of-a-kind, you can still look around and see if you can find someone who can make you the same thing locally.

This first step is a good one because it doesn’t introduce any compromise on the item itself. All I’m doing is looking for ways to have that exact item at a lower price.

What inevitably happens as I shop around is that I see similar items at much better prices. For example, with the above table, I asked around with a local woodworking group and a few people pointed me to a local woodworker who looked at the designs and said he could make me a duplicate of the table I was looking at for about 30% less. He also pointed me to something similar he could make that would cost about 70% less than the desired table just by losing a couple minor features. It’s still basically the same table, but it would cost 70% less.

I’ve also found success when simply browsing for ideas. Not too long ago, I went to a furniture store and found a table that was surprisingly similar to the table I was looking at for about 75% less. I wasn’t particularly looking for a table, but I was surprised to find such a similar one.

I found several options that will save me a mint essentially without compromising on what I liked about the table.

I’ve gone through the same process with many items: computer tablets, work desks, and work chairs, to name a few. I’ll find an item that’s “perfect” and, for a while, I’ll get “tunnel vision” with that item. The first step is to simply shop around for that same exact item, but in the process, I almost always find similar items that are functionally equivalent. By doing that, I usually end up saving a ton of money and wind up not compromising on the aspects that matter.

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The Best Credit Cards for College Students in 2014

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Student credit cards are instrumental for building good credit early on. If you select a card that specifically caters to the unique circumstances of college students, it can pay off big in the future in terms of a healthy credit score and the valuable experience that comes with responsible card use.

After analyzing the best credit cards for college students, I identified the Discover it® for Students as the superior option.

The Discover it® for Students card ranks first among the best student credit cards because it offers virtually everything a college student needs to build good credit, which is critical for future loans and job placements.

What Features Make an Excellent Student Credit Card?

• Easy approval. Understanding that college students have not had the time to build a robust credit score, the card accepts credit scores in the 600 range (out of 900).


• Superb reputation among current users. The card garners top reviews on third-party websites as well as its own.


• No recurring fees. There is no annual fee, no foreign transaction fee, nor any other yearly fee.


• Rewards. The card offers cash-back or rewards points for purchases all year round and/or in rotating quarterly categories, preferably those that are relevant to the college-student lifestyle.


• Forgiveness for first-time errors. The card does not charge a fee or implement a higher APR for a first-time late payment. Additionally, the Purchase Intro APR is 0% for six-plus months to provide a student ample time to “practice” responsible card use, making sure they pay off the full balance on time without paying interest.


• Tools to help novice credit-card users understand their spending. The card offers tables, lists, and charts to help college students gain insight into their spending habits and learn to adjust as needed.


• Credit score education. The card offers free FICO scores so students learn how to raise their scores early on.


• Excellent customer service. Phone representatives provide thorough information to students who are just learning about credit-card use.


• Protection. $0 fraud liability is offered so the student won’t be responsible for any fraudulent transactions made on the account.

Why Discover it® for Students is #1

Based on the online customer reviews on Discover.com, college students are thrilled with the card. The average credit score approved for the card is 672 and the lowest credit score approved for the card is 629 (as of January 2014), indicating it’s not too difficult to get accepted.

With the Discover it® for Students card, you can log in to your online account to find charts illustrating the types of items purchased and how much you spend on average. On top of that, they provide a free FICO® Credit Score on your monthly statement to help you stay on top of your credit.

Discover also offers some of the most helpful customer support, with U.S.-based representatives who thoughtfully answer novice questions and help grow your credit knowledge over time.

Discover it® for Students — Card Details:

• Fair. No annual fee. No overlimit fee. No foreign transaction fee. No late fee on your first late payment. And paying late won’t increase your APR.*


• Generous. 5% cash back on up to $1,500 in Restaurant and Movie purchases from January through March 2014 with free and easy sign-up. And 1% cash back on all other purchases.*


• Human. Talk to a real person any time with 100% U.S.-based service.


• Safe. Because you’re never responsible for unauthorized purchases with our $0 Fraud Liability Guarantee.


• Plus, free FICO® Credit Score on your monthly statement to help you stay on top of your credit.*


• 0% intro APR* on purchases for 6 months, then the standard variable purchase APR of 12.99% – 21.99%.*

3 Other Student Credit Cards Worth Considering

Citi Forward® Card for College Students

Signup Bonus APR: Earn 2,500 bonus ThankYou® Points after spending $500 within the first 3 months of cardmembership.

APR Promotions: 0% Intro APR for 7 months on Purchases

Annual Fee: $0*

Variable* APR: 13.99%-23.99%* (Variable)

• Watch your interest rate go down and your ThankYou® Points go up


• 2,500 bonus ThankYou® Points after spending $500 within the first 3 months of cardmembership


• 1 ThankYou® Point for every $1 you spend


• Earn up to 2% Purchase APR reduction, when you make a purchase, stay below your credit limit and pay on time 3 billing periods in a row (0.25% each quarter 8X maximum)


• Earn up to 1,200 bonus ThankYou® Points for paying on time and staying under your credit limit


• Flexible billing options


• No Annual Fee

Journey Student Rewards from Capital One®

Signing Promotion: Get 1% cash back on all purchases, plus a 25% bonus each month you pay your bill on time.

Annual Fee: $0

APR, Variable: APR: 19.8% (V)

• Designed to help students build good credit with responsible use


• Access to your monthly credit score, plus an interactive tracking tool to help monitor your credit


• Customizable text and e-mail alerts to help keep you on track


• Get 1% cash back on all purchases, plus a 25% bonus each month you pay your bill on time


• No annual fee


• $0 Fraud Liability if your card is lost or stolen

Citi® Dividend Platinum Select® Visa® Card for College Students

Purchase Intro APR: 7 months* 0%*

Annual Fee: $0

Purchase Regular APR: 13.99% – 23.99%* Variable

• Build credit while earning cash back fast


• Earn 5% cash back every quarter in must-have categories like department stores, travel and more, enrollment each quarter is quick and easy


• Earn 1% cash back on all other purchases


• Choose your payment due date


• Manage your account online, on your tablet or on your Smartphone


• No Annual Fee

Credit Card Act of 2009: How It Impacts College Students

Under the Credit Card Act, students between ages 18-21 only qualify for a credit card if:

• a parent/guardian, spouse, or another adult is willing to co-sign.


• you submit proof of income and financial history proving a full-time income (or even a part-time income that’s sufficient enough to pay the balance each month).

Make sure you research and discuss this with the appropriate person before applying for a card, especially if you do not have a steady income.

6 Top Credit Card Tips for College Students

Pay your bills on time, every time. Do not take this lightly! On-time bill payments account for a whopping 35% of your credit score. Set up automatic payments to ensure you never forget. When you do, also make sure your checking account from which you make your payments always carries sufficient funds.

Always spend less than what you can afford. As a first-time credit-card user, it might be easy to view credit as money you do have, but it’s actually money you don’t have yet. After determining your budget and accounting for necessities, such as rent, aim to spend much less than what you make for everything else.

Don’t spend too close to your credit limit. In fact, keep that percentage as low as possible. According to myFICO.com, amounts owed on credit accounts determine 30% of your score.

Start off with just 1-2 cards. As a student, your main goal should be to “practice” using a credit card responsibly. Chances are you have absolutely no need for 4-5 cards. Focus on just 1-2 cards and paying your bills on time.

Check your credit report yearly. Every year, obtain a free copy of each of your three credit reports, from Experian, TransUnion, and Equifax, at AnnualCreditReport.com. Make sure all the information is accurate. Getting into this habit will do you good in the long run when your credit report begins to fill up with more and more credit history.

Keep track of your credit score. Separate from your credit report, your credit score is the number lenders use to determine your creditworthiness. This number is incredibly important, so make sure you check it yearly. Fortunately, student cards like Discover it® for Students offer a free FICO score with each monthly statement.

Regardless of which you choose, all the best student credit cards aim to help college students build the foundation for a healthy credit record. Other benefits, such as cash-back rewards and knowledge building, also contribute to creating responsible and highly aware credit card owners.

If you want to go with the most solid option on the market today, definitely go with the Discover it® for Students first.

Written by Sarah Ban

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