With Jill Gonzalez, Spokesperson & Financial Analyst for Wallethub.com
Best Credit Cards For College Grads And College Students
Jill Gonzalez is a consumer finance expert and financial literacy advocate, and also an analyst for WalletHub. She talks with Steve today about credit cards available to students and recent graduates, advice for managing your spending and staying on track with paying down balances, and the importance of building credit. Steve asks Jill to walk listeners through the cards discussed in a recent WalletHub article entitled 2017’s Best Cards for Recent Grads. She prefaces her description of specific cards by noting that some will only be available to grads who’ve already started to establish good credit and have a credit file unlike most of their peers, either through being authorized on their parent’s card or by having loans in their name. For these lucky (or savvy) folks, she opines that Capital One Quicksilver Cash Rewards is a good option, and adds that Chase Slate and Citi Double Cash Card are great offers available right now. While the APR (interest rates) are in the normal range, they have strong rewards features in the form of 1-2% cash back. Steve mentions that he’s familiar with one of the cashback cards and their requirement that you pay your balance every month in order to qualify for the rewards. Jill explains that with the Citi card, which she likes because it teaches cardholders to pay down their balance every month, you have to pay the balance down in order to “double” the cashback percentage to 2%. Steve describes how he paid only half of his balance down one month, and was shocked to realize that he was charged interest on all of his spending for that month, not his outstanding balance. And of course he missed out on the extra 1% back. He says it stung badly enough that he’s never made that mistake again. Jill agrees that Steve’s experience is a good one to emphasize to grads who may not understand that the interest they pay is compounded daily, not just at the end of the month.
Best Cards For Students & Grads With “Thin File” Credit
For grads with more limited credit there are another class of cards they may qualify for. Grads and students who haven’t been authorized users of their parents’ cards and haven’t had cards or loans of their own have what the credit card industry calls a “thin file.” For students with no credit history who still have a .edu email address, Jill likes the following cards: the BankAmericard Travel Rewards for Students, the Journey Students Rewards Card from Capital One, and another BankAmericard, the Cash Rewards for Students. All of these are relatively easy to get approved for. Unfortunately, many students and grads don’t realize they should target the cards they apply for based on its requirements, assume they’ll be approved and end up applying for too many cards, and this often has a negative effect on their credit score which can last for a couple of years. The takeaway is to only apply for cards that you have good approval odds for.
The big difference between the first group of cards and the second one is that the latter generally have APRs north of 20% as opposed to the average of around 14%. These cards are a simple line of credit that is not “secured” by a deposit, which is more beneficial in terms of building up credit score. Many of these more lenient student cards do have rewards features as well, whether in the form of airplane miles or cashback. For grads that no longer have a .edu email address, the options are narrower: they might qualify for the Capital One Platinum Credit Card, and if not they can fall back a secured card where the available balance is defined by the amount of cash deposited in the account. The Capital One card has no benefits, but after a year or so of timely payments and not maxing out the card they upgrade it to a card with rewards.
Pay Down Monthly Balances Or Lose Rewards And Pay More Interest
Steve remarks that it’s crucial that no matter what the card, you have to be diligent and smart in your use of it or it will come back to bite you. As he puts it, there’s no point of shopping around for good prices if you’re going to use the card and not pay off the outstanding balance, instead taking a 24% hit on the unpaid part. Jill agrees, adding that using the card while keeping your payments on track is essential to maintaining a good track record and not accruing interest. She suggests setting up auto-pay as soon as you get the card so you don’t let your payments ride on your ability to remember their due date every month. Steve argues that you should be confident in the stability of your income if you’re going to use a credit card regularly. If your work is intermittent or unpredictable, be careful because you could find yourself in a situation where you have to decide between your grocery budget and paying off your credit card balance.
Student Debt On The Rise
Steve turns the conversation towards the subject of student debt. He mentions a WalletHub study that Jill was involved with that looked at student loan borrowers and the rate of delinquency and also at the amount of student debt in various US cities. The study looked at which cities were the most “overleveraged” on student debt, as measured by student debt-to-income ratios. Unsurprisingly, most of the cities with the highest leverage are college towns: Bloomington, Indiana, Athens, Georgia, College Park, Maryland, etc. The combination of student loan debt and few full-time job opportunities for students add up to a challenging situation for countless students. Jill says that the average student debt load has climbed to $25,000 but is exceeding $40,000 in some areas. Steve mentions that WalletHub has a student loan calculator which makes it pretty easy to see what a reasonable monthly payment amount might be for you with your current or projected income, and what a reasonable payoff timeline might be. Of course you don’t want to extend your loan as far out into the future as you possibly can. Jill explains that you simply enter the loan amount, interest rate, and the loan term in years and it spits back a monthly payment and tells you when the loan will be paid off.
Good Money Habits To Instill After Graduation
In his final question for Jill, Steve asks what money-saving tips she could offer recent college grads. Because so many things are new to grads when they leave college – being new to a job, new to living on their own, new to having their own money to spend – it’s actually a good time to instill a new habit: setting aside money for an emergency fund and then a savings account from every paycheck. To take the idea further, savings in a dedicated account like an IRA can be invested in equities and other assets, so this is a good opportunity to start learning about investing. Making regular deposits of a fixed amount – say 10% a month – and having a very long savings / investment timeline is a good way to make the process automatic. The key to this strategy and why it works so well is in the second part of the previous recommendation: time. Compound interest over time is a snowball capable of wondrous things. Jill’s final piece of advice reiterates some of her earlier admonitions: whether you have good credit or are a “thin file” unknown, there are steps you can take to start building your credit now. Getting off to a strong start right after college will lift your credit rating and bring myriad benefits down the road, from qualifying for loans and on better terms to landing a dream job.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: With graduation season upon us, I thought we’d focus on students and their money. Let’s meet Jill Gonzalez, consumer finance expert and financial literacy advocate, also an analyst for WalletHub. Building excellent credit is the best way to minimize the cost of student debt while paying off your balances as quickly as possible.
I want to talk to Jill about some of the best credit cards available. Welcome to the show, Jill.
Jill Gonzalez: Thanks for having me.
Steve Pomeranz: So, there was an article written, 2017’s Best Cards for Recent Grads. So why don’t you take us through that?
Jill Gonzalez: So, finding credit cards for recent graduates could be a little bit troublesome, depending on your situation. So, one, you might have good credit. This might be a new card for you. You might have been authorized on your parent’s card, so you have some type of credit file. You might have had loans in your name, so a credit file to build on. That’s where we can get some really better credit cards here.
Capital One Quicksilver Cash Rewards is a good one. Chase Slate, Citi Double Cash Card, all have really great offers right now. Around average APR rates but really good rewards, mostly in the form of cashback, anywhere from 1 to 2%.
Steve Pomeranz: I know that one of the cashback cards I’m very familiar with requires that you pay your balances every month.
Jill Gonzalez: Absolutely, and that’s how you get that double cashback feature. So, the Citi card, I’m a huge proponent of it because I think it really teaches people and motivates people to be paying up at the end of the month. So, that card gives 1% cash back across all purchases and another percent cash back when you pay your monthly bill.
Steve Pomeranz: It’s a big shock, I have that card, and I was late. Or no, I didn’t pay back the full balance one month. So, I thought, well, let’s just say it was $1,000 outstanding; I paid back $500, I thought they were going to only charge me on the $500.
Uh-uh, they charged me interest on the whole beeswax. I did not get my extra 1%, and I got stung with a lot of interest. So, you really have to commit to paying this card off every single month, if you want to keep that benefit.
Jill Gonzalez: Right, right, and you don’t have to necessarily be paying it every single month if you can’t. But again, it does give a huge overall earning rate if you do. And that’s a good point that you brought up. I think a lot of recent grads who might not be familiar with credit, might think this is when I’m charged my interest, right?—the end of the month.
No, it’s compounded daily. So, that’s a good lesson to learn, and you learned it the hard way.
Steve Pomeranz: I did, I learned it [LAUGH] the hard way. But I learn from my mistakes, so I’ll never do that again. Now there are cards that are better for grads who have limited credit. Tell us about those.
Jill Gonzalez: So, a lot of grads have no credit file coming out of college. They maybe were not an authorized user on the parent’s cards, or they didn’t have a card of their own. Maybe they were lucky enough to not have student loans, so there’s nothing there.
That’s what known as a thin file in the credit industry. And there are cards that really do help with students. If you still have your .edu email available to you, these are good cards to definitely get into: the BankAmericard Travel Rewards for Students, the Journey Students Rewards Card from Capital One, and another BankAmericard, the Cash Rewards for Students. So, all of these will be a little bit easier to get approved for. And I think that’s what grads have a tough time doing. I think a lot of them think, “hey, I can apply for cards and I’ll get one.” Sometimes they apply for anywhere from one to up to ten cards, we’ve seen. And having ten card inquiries on your credit report is not ideal.
Steve Pomeranz: That’s going to hurt.
Jill Gonzalez: Yeah, exactly, they stick around for two years, and a lot of graduates don’t know that. So, it’s better to just go ahead and apply for a card that you have good approval odds for.
Steve Pomeranz: So, how do they account for those with limited credit? I mean, the interest rates are higher. I mean, somehow, the credit card company has got to compensate itself for the extra risk.
Jill Gonzalez: Exactly, the interest rates are a little bit higher. I would say in the 20 to 24% range, as opposed to the average is around 14%.
Steve Pomeranz: Wow.
Jill Gonzalez: But the good thing here is that A, it’s not a secured card, which would mean you’d put a deposit down.
Steve Pomeranz: Yeah, that is good.
Jill Gonzalez: And two, there’s still rewards. So, a lot of these cards that are easy to get approved for are just a line of credit. They don’t really come with anything. But these do have rewards in the form of miles, in the form of cash back up to 1.25%, so those are definite pluses.
Steve Pomeranz: Gotcha! What about a grad that does not have a .edu email, what’s available for them?
Jill Gonzalez: That’s when you would probably have to go the secured route. There is one other card that you could try, which is the Capital One Platinum Credit Card. It’s entirely unsecured, so that’s a good thing, no deposit here. There’s no rewards, which is not ideal. But the good thing about this card is that after about a year or so of on-time payments, a good track record, no maxing it out, they actually upgrade you to a Capital One card with rewards.
Steve Pomeranz: So, it’s a good starter card. But again, in all these situations, you have to be diligent, and you have to really be smart about it. Because on that one card, for you to pay a minimum balance and to be paying 24% on the remaining balance, I mean, why bother looking for anything on sale, if you’re going to end up paying 24% more for it at the end of the year? Just think about that, yeah.
Jill Gonzalez: Absolutely, absolutely, and that’s why, obviously, starting with a credit card is your first step here. But then, maintaining it and making sure you’re on track. We always say, just enroll in auto-pay the second you get the card because that really does cut down on a lot of forgetfulness.
Steve Pomeranz: Yeah, and make sure that you have the kind of income that’s steady income. And that you’re sure that you can support it. You’re not going to go a month or two without any income or minimal income. And then it’s a question between eating and paying off your credit card, that’s a bad thing. Or paying the minimum on your credit card, that’s not good either. So be smart about that. WalletHub also did a study you were involved with that looked at student loan borrowers and the rate of delinquency. And it was released in a 2017 report. Also, the report was the cities with the most and least student debt, tell us a little bit about that.
Jill Gonzalez: In this report, we looked at which cities were the most overleveraged on student debt and what that really focuses in on, is the student debt-to-income ratio within these cities. It’s not a real surprise here that many over-leveraged cities also happen to be college towns. Places like Bloomington, Indiana; Athens, Georgi; College Park, Georgia as well. So a lot of these are near the top here. And that’s because there’s a lot of debt there, obviously, student loans and very little full-time employment, especially where the students are concerned. There might be some part-time earnings, but obviously not enough to really be taking on this debt.
Right now, the average student debt is getting up there, it’s around $25,000 in most of these cities, some were like $40,000, others, none at all. So, some near the bottom of the rankings are more affluent suburbs, right? Where the population is a little bit older, more years under their work experience, growing incomes, and they’re able to pay off that debt.
Steve Pomeranz: On the site, there is a student loan calculator to determine a payment amount, a realistic payment amount based on your income. And also, more importantly probably, a realistic payoff timeline. Because, really, you don’t want to be paying such a low payment that you’re paying it for the next 30 years. That’s going to get in the way of a lot of your plans.
Jill Gonzalez: Absolutely, and this is pretty straightforward. You enter your loan amount, the loan term in years, and the interest rate. And it spits out a monthly payment and also gives you when that loan will be paid off.
Steve Pomeranz: While we’re talking about finances, what are some money-saving tips that you can offer recent college grads? How can they get off on the right foot?
Jill Gonzalez: I think grads who are new to a job, new to kind of living on their own, new to spending money on their own that’s actually theirs, I think a lot of things might be new to them. So, one thing here is to really look into saving and investing. And I think that’s an easy blanket statement to say, save up.
Steve Pomeranz: It’s not easy.
Jill Gonzalez: Exactly, and I think it’s a little bit more doable when you have clear goals. So, if you set yourself up to set aside at least 10% of your monthly take-home pay, by the end of the year, you’ve got a nice little rainy day fund.
That is nice to have if anything happens with your job if there’s an emergency. That’s a really good thing to be able to fall back on.
Steve Pomeranz: Let me interject, I often say that you’d be surprised how fast your savings can accumulate. Before you know it, you have 500, 1,000, 2,500. It grows fast if you’re diligent, and do it over a good period of time. It’s a virtuous cycle that you’re creating for yourself. You know how everybody’s heard about the vicious cycle of getting too much in debt? Well, that’s a snowball, too, of a different type. But the saving snowball is a positive type. And that’s something I really encourage everybody to jump on.
Jill Gonzalez: Absolutely, and I think it’s really paying yourself first. So, once you have that rainy day fund put aside, that’s when you can start looking into an IRA, or contributing to an employer’s 401(k) plan because those things are important too. It’s important to have a rainy day fund and about 60% of Americans do not.
Steve Pomeranz: On everybody’s bank account these days, there’s a spot on the site which actually will tell you what your credit score is. How important is that for someone starting out?
Jill Gonzalez: Very important, so we say ABC, Always Build Credit.
Steve Pomeranz: Okay.
Jill Gonzalez: And especially with a start from college, it really is important. Especially if you don’t have any type of credit, with that thin file that we talked about. So, it really does bear some repeating, to be looking into that, be building up credit here. And having good or excellent credit saves you so much money on future loans, on getting a car.
Employers now are even looking and drawing credit files because that responsibility comes into play throughout all aspects of life.
Steve Pomeranz: [LAUGH] Great point, my guest, Jill Gonzalez, consumer financial expert and financial literacy advocate, and also analyst at WalletHub.com. Thank you so much for joining us, Jill.
Jill Gonzalez: Anytime.