Should you take out credit card debt for an internship?
You can’t get a job without experience, and you need experience to get a job. This is the catch-22 situation that often propels students and young people into unpaid or low-paid internships, and potentially credit card debt.
If you’ve managed to land an internship in your dream industry, perhaps working at a magazine or a non-for-profit, it is tempting to just enjoy your success and use a credit card to foot the bill.
However, there are many costs involved in an internship, even if you’re paid some compensation. These include travel (depending on current Covid-19 restrictions), rent if you’re staying in another city, and the everyday expenses of food and bills. If you’re using a credit card that you don’t have the funds to pay off, you could end up in serious debt, damaging your credit score and getting contacted by debt collection agencies like Mortimor Clarke Solicitors, who chase up unpaid credit card debts.
Nevertheless, there are some situations where it’s useful to take out credit card debt for an internship. In this article, we’ll explore both the pros and cons of taking out credit card debt for an internship, so that you can make the right choice for your situation.
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Should you take out credit card debt for an internship?
You should not take out credit card debt for an internship if you’re doing so because you can’t afford the expenses of your internship, because if you don’t have the funds to pay your credit card in full and on time, you could end up in serious debt that will damage your credit score, and potentially your career prospects. To make things easier for parents, many establishments now offer free debit cards specifically for kids!
However, you may wish to take out credit card debt for an internship if you have the funds to pay off your credit card in full each month, because this is a good way of building your credit score, which allows you to secure things like home loans and pass an employer’s credit checks.
Let’s look at this issue in more detail, and discover exactly when you should and shouldn’t take out credit card debt for an internship.
Pros of taking out credit card debt for an internship
Despite the dangers of debt and the temptation to overspend, there are several pros to taking out credit card debt for an internship.
- Builds your credit score
A good credit score is the key to meeting your most basic needs as an adult. Renting an apartment, getting approved for a home loan or mortgage for your dream house, and even getting the job you want, all depend on your credit score. Your credit card will report your payment activities (whether you pay on time or not, or miss payments) to credit bureaus, so making timely repayments on your credit cards during an internship is a great way to boost your credit rating, and secure your financial future.
- Increases financial awareness
As well as a good credit score, using a credit card wisely is a great way to build financial awareness. If you’re doing an internship, especially abroad or in a new city, you’ll have to organise all kinds of things involving money, such as rent, bills, and travel, so learning how credit cards work is also a good way to learn to budget, and stay within your means. By only spending on your credit card what you know you can pay back, you’re learning important financial skills for when you manage your own home and income.
- Useful for emergencies
Another huge benefit of having a credit card on an internship is that it can help you in an emergency. This will definitely put parents’ minds at ease, if they know that their children can pay for medical treatment or emergency flights or travel, if something happens. If you’re going abroad for an internship and you’re using a credit card, make sure you pick one which is accepted abroad. For example, Capital One and Visa credit cards are accepted overseas. If you can’t get hold of a student or secured credit card that allows you to use it overseas, it may be better to use a debit card instead.
Cons of taking out credit card debt for an internship
However, there are also cons to taking out credit card debt at university, especially if you can’t afford it.
- Can hurt your credit score if misused
Just as paying off a credit card improves your credit card, not paying it off on time damages your credit score. Employers in both Nigeria and the US often check a variety of things, including your credit score, before they decide to employ you, so a poor credit score can have negative consequences on your future. And if you want to own your own home, or even rent one, you may struggle to do this with poor credit. If you do use a credit card during your internship, make sure you never fall into the trap of making minimum payments and telling yourself that you’ll ‘just pay it off in full next month’. This is what makes interest spike, and you’ll end up paying more in the long run, as well as being tempted to spend more.
- Get into unaffordable debt
If you get into the habit of living on credit and spending more than you can afford, credit cards can be a fast track into unaffordable debt. This is why you should never use a credit card on an internship if you’re doing so because you can’t afford your living expenses. If you have no means to pay back your credit card, you’ll lose even more money in interest and late fees. Your credit card debt can also get passed on to a debt collection agency, which damages your credit score further, and you could eventually end up in court or have to go bankrupt (don’t worry, you can’t go to prison for being unable to afford your credit card debts), which will seriously affect your financial future.
When should you take out credit card debt for an internship?
You should take out credit card debt for an internship if:
- You have the cash to pay your credit card off each month on time and in full.
- You’re using your card to build up your credit score or to help you budget and gain financial awareness. If you’re tempted to use credit because you can’t afford your living expenses on an internship, check out our ‘alternatives to using a credit card on an internship’ section.
- You have the cash to pay your credit card off as soon as the first bill arrives, and you want to use certain rewards you get for a big spend on a credit card. For example, if you’re renting an apartment for a couple of months for an internship and you or your parents or guardian have the cash to pay for it upfront, you or they may choose to put it on a credit card to get cash back rewards.
You shouldn’t take out credit card debt at university if:
- You’re using credit to pay for essentials like food or rent on your internship, because you can’t afford them yourself. Taking out credit is going to be more expensive in the long run, because you’ll eventually have to pay off what you owe, plus interest and late charges if you can’t afford the bill.
- You are already suffering with debt. Adding other sources of credit when you’re struggling to pay previous debts could make the problem worse, as you’re increasing the amount you have to pay back. Also, if you have missed payments on debts, your credit score could be poor. In this case, if you get approved for a credit card, it will probably be one with higher APR, so if you fail to make repayments on time, you’ll get hit with even higher fines and interest.
- Your internship is unpaid in an exploitative sense. Unfortunately, there are a lot of ‘internships’ that are actually just companies wanting free labour and not offering much in return. You should never use a credit card if you can’t afford it, and certainly not on an internship that isn’t going to give you anything valuable back. Unpaid internships are only legal in the US if they pass what’s called the [Primary Beneficiary Test](https://www.dol.gov/whd/regs/compliance/whdfs71.htm). Even if you don’t live in the US, you can use this test as a good gauge of whether your internship is worth it. The Primary Beneficiary Test has seven points to test whether an unpaid internship is legal, and these include whether the internship is limited to a duration where you’ll get beneficial learning, and the extent to which your work complements, rather than displaces, the work of paid employees, and gives you ‘significant educational benefits’.
Alternatives to using a credit card on an internship
Rather than taking out credit debt you can’t afford for an unpaid internship, there are a lot of options you can explore for funding. These include:
- Contacting your university for help. If you’re a student, you may find that your university or college has grants specifically to help you fund an internship. For example, Dickinson College in Pennsylvania offers grants for low or unpaid internships, particularly if you’re a first-time applicant (you don’t have to make a competitive application for them). The University of Texas offers internship scholarship funds of up to $2,000 for undergraduate and graduate fine arts majors to “professionalize their artistic and entrepreneurial ambitions”, and get some work experience in their chosen field. Freeman Asia offer internship awards of up to $5,000 for students and US citizens of certain US universities, giving you an amazing chance to work and study abroad. The best thing to do is contact your university careers office, to see what internship grants or support they may offer.
- Applying for paid internship programs. There are many organisations who list paid internships for students and young people. For example, you can find internships with Standard Chartered Bank, as well as with a wide range of finance, business and media corporations in Nigeria on the Opportunity Desk website.
- Searching for grants in your country or region. You may well find grant opportunities that you’re eligible for because you’re from a particular state, region or country that you can take advantage of to fund an internship. You can search the Grants. Gov website to find information on over 1,000 grant programs. While most grants on this site are for organisations, individuals can submit applications for funding opportunities. Just make sure you check the ‘individual’ box when you’re looking for your grant funding.
What credit card should I take out for an internship?
If your’e a student doing an internship, or you’re doing an internship and you don’t have much credit history, you generally have three options for credit cards. These are:
- Prepaid cards. Technically, these are debit cards and not credit cards, as you only spend the amount of money you have already loaded onto the card, and are not borrowing any money to be repaid later. However, these are a useful option for internships and student life in general, as they help you learn to manage your finances without the risk of running up debts which will negatively affect your future. Just be careful, as some prepaid cards charge high fees to withdraw cash, or even to start using the card. Verve credit card is a good example of a credit card in Nigeria which doesn’t charge fees for withdrawal.
- Secured cards. These are credit cards which you need to put down a deposit on, in order to get a line of credit. Secured cards are designed for people with poor or little credit history, and who can’t prove that they’ll be responsible borrowers. If you pay your bills off on time and in full you’ll be able to get the whole of your deposit back, but if not, the credit card company can keep the deposit to pay off your debts. Secured cards are a great way to build your credit history, so using them on an internship while you’re gaining work experience for your future career is a perfect way to establish a strong, financial future, as long as you actually have the funds to pay off your credit card in full. OpenSky Secured Credit Visa Card is a useful secured card, as it allows you to pick a credit limit based on the deposit you put down – if you put down $100, you’ll get $100 in credit. Again, never use secured credit cards unless you can pay them of, because the interest rates can spike pretty quickly if you don’t. OpenSky Secured Credit Card has an APR rate of 17.39% which is high for a credit card.
- Student credit cards. A student credit card is a great choice if you’re doing an internship as a student. Student credit cards help you build a good credit score for your future, so you’re ready to start your working life with good credit, and the ability to rent or buy a home one day. Make sure you pick a student credit card that reports to the main credit agencies – TransUnion, Equifax and Experian in the US, or The Credit Bureau Association of Nigeria (CBAN) in Nigeria – so you can build your score. Student credit cards usually have a lower credit limit than regular credit cards. Discover it Student Chrome credit card, for example, has a starting credit limit of $500. However, once you build your credit score with a student credit card, your credit limit is likely to increase.
Now that we’ve gone through the details of whether you should take out credit card debt for an internship, we hope you’ve found it a useful read. Although credit cards are great for building your credit score, which you’ll need for anything important in life, remember to never use a credit card if you can’t afford to pay it back, or you could end up in serious debt.
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