Every week the banks come up with some new loophole they’ve found to get around the Durbin Amendment (that was added on the Dodd-Frank Financial Reform Act) and the Credit Card Reform Act. In a nutshell these new laws prevent banks from continuously gouging both consumers and merchants in a sea of unnecessary transaction and account fees. However, if ingenuity is the mother of invention, banks are showing that they refuse to let themselves become orphaned when it comes to collecting fees.

But where does that leave starving college students and their families, both of whom struggle to help make those tuition payments? The anemic economy, along with the less frequent use of cash makes credit a fact of life for any college student. So just what is exactly the best use of credit for a college student? Let’s find out by taking a look at the four most popular types of credit; debit cards, bank account debit, layaway, and the good old-fashioned credit card.

Debit Cards

Debit card used to be the best payment option, next to writing a check or paying with cash, but unfortunately that’s changed. Because federal regulations mandate that banks can no longer charge merchants any more than 21 cents per credit card transaction (down from an average of 44 cents per transaction), banks have decided to make up that loss by charging the consumer instead. Starting October 1, 2011, Bank of America will charge a $5 a month for the use of a debit card ($5 per month total, no matter how much or how little you use it). And other banks are following suit. Starting in 2012, Chase and Wells Fargo will start charging $3 per month for the use of their debit cards.

The solution? Use your debit card as an ATM card only. ATM use at your own bank is still free. This means you’ll have to plan ahead to get the cash you need to pay for things, but it beats paying an extra $60 a year for an account on which you probably already pay anywhere from $10 to $15 a month.

Bank Account Debit/Automatic Deposit

For bigger purchases or regularly recurring bills your best option now is to either go old school and write a check, or set up direct payment from your checking account. Many banks still offer the direct payment service for free if the payment is initiated from the creditor’s end; meaning you give your phone company, for example, your bank routing number and account number and then they simply debit your account.

The downside is if you do monthly auto-pay, you have to make sure you’ll always have money in your account to cover the payment. College students are notorious for living hand-to-mouth, so assuming money will be in a checking account when needed could be dicey. Instead, you can set it up so that your bank account is not debited until you actually initiate it from your creditor’s website (or by phone).


Okay, Walmart is responsible for bringing back this dog of an option. Back in the 1930s (before credit cards) many stores started allowing patrons to make payments on merchandise, keeping the merchandise until the customer paid it off (usually in a month or two). Initially, the merchant did not charge a fee, so it was a pretty good deal. This practice was called layaway, but finally died out in 2006 due to the credit card.

However, Walmart is bringing layaway back, but not because they want to help financially strapped families. As the New York Times points out, with Walmart’s $5 layaway fee you’re actually paying way more for your merchandise than if you simply bought it with a credit card, unless you put hundreds to thousands of dollars of merchandise on layaway, which Walmart won’t let you do.

Again, the best option is to just live within your means. The layaway option is not for books, rent, food, or tuition. It’s for things you can probably live without like cheap clothes, CDs, or electronics. If you can’t afford to pay cash for luxury items, then put them on your wish list.

Credit Cards

With all the restrictions being put on banks by the Credit Card Reform Act, using a credit card is not as dangerous as it used to be. (Although, you still need to control your spending.) When paying for big college expenses (like tuition, books, dorms, food) a credit card is probably the best way to go, unless you can pay cash by writing a check or use free direct deposit into your creditors’ accounts. The interest you pay on a credit is still lower than to use a debit card.

So as it stands now, the cheapest way to use money while in college is to get cash out of your bank with an ATM card, write a check, or use a credit card. In all cases, getting some online banking/accounting software like Intuit’s Quicken is a great way to keep track of your spending. Then again, you can always keep it in a cookie jar. Last I check that option is still free.

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