My son is a fourth-year medical student, and we have had some great discussions about credit cards recently, including their benefits. I believe this information would be helpful for all medical students to consider.
As a student my son once preferred to use a debit card or cash to keep his expenses controlled. This financially conservative approach is what he was taught during his young adult days in our home. Avoidance of debt and spending only what one has in his/her possession is a fairly good approach to personal finances.
Eventually, he realized that with responsible use a credit card is an extremely valuable tool that he could leverage for his benefit. Armed with an understanding of how to properly use a credit card, he could maximize his financial position as a student and set himself up for success in the future.
This is why I can confidently say there are at least four reasons why one can benefit from a credit card during medical school.
1. Financial habit development. The experience of having a credit card that you pay off every month is a great introduction to managing debt. The monthly billing statement you receive will help you to become more aware of your spending each month. Operating with cash or a debit card that pulls directly from your bank account can make it easy to be oblivious to the amount you are spending, especially when your bank account is regularly replenished with student loan funds.
The high interest rates that credit cards carry will make you acutely aware of the steep penalties that lay around the corner if you do not live within your means and make your payments each month (for most students, this means student loan funds). Over your four years of medical school, this will create financially responsible habits through a credit card that will serve you well for years to come.
2. Build a credit score. First, what is a credit score? This is a standardized number financial institutions generate based on a variety of factors that helps inform them whether you are someone they should lend money to, how much they should lend, and how much interest they should charge you to borrow their money. This might not affect you immediately, but not too far down the road, when you apply for a loan to buy a home, your credit score will be the first thing that the bank looks at to determine your eligibility.
One of the critical components of a credit score is credit length, or how long you have responsibly used a line of credit. This is something that can only be achieved through years of maintaining a credit line. The simplest credit line to maintain is a credit card. You use it throughout the month and pay it off at the end of every month. This is included in your credit report, and after several years of maintaining this line of credit, it will significantly boost your credit score. Over the course of medical school, you can easily add 4 years to your credit history and boost your score to set up for success in the future.
3. Rewards points. If there is one thing that all medical students have in common, they must bear the massive expense to attend school. Not only are there tuition and living expenses, but the steep costs of USMLE exams and external resources such as UWorld, Sketchy, and Boards and Beyond. Using a rewards credit card can help lessen the pain of these expenses. I recommend a card that allows you to get cashback or use your points to reimburse purchases. Some cards have flat one percent cashback rewards, while others have higher rates for specific purchases such as groceries or gas. Every dollar counts when you are a cash-strapped medical student. For medical students, cashback cards are far more beneficial than travel reward cards.
4. Safety net. Many medical students live in a chronic cash-strapped state and have little to no funds if an emergency strikes. The majority of students drive older cars with worn tires, and if they were to need any sort of major repair, let alone if they wanted to do regular maintenance such as replacing the tires, they would be in trouble. If student loans have not been dispersed and their bank account is empty, a credit card allows students to still buy groceries and gas. A credit card provides students with a reliable backup plan in case of emergency.
There is no doubt credit cards do have some risks, especially if the balance is not paid off each month. But when managed properly, they can have some wonderful benefits to medical students.
Written in collaboration with John Stillson, who is a medical student.
Tod Stillson is a rural family physician who does surgical obstetrics and teaches residents and medical students. He is also founder, SimpliMD, Doctor Incorporated, and The Employed Physician’s World Facebook group.
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