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Student
Credit Card Debt: A Survival Guide for Students By
Amy Cooper-Arnold
College
is the last care free step before real life begins, or at
least it should be. Students should be able to go to sleep
each night with the only pressing responsibility being the
English exam tomorrow morning. They should still get to live
in a world where although they can’t afford much more than
the occasional late night drive through Taco Bell or downloading
the latest hit single, at least they aren’t worrying yet about
paying a mortgage, most forms of insurance, utility bills,
or the college loan that is allowing them to get an education.
Unfortunately,
for many college students this is not the case. Many are already
burdened with financial pressure because they are accruing
credit card debt, in some cases over $7,000 worth of it. Increasingly,
students are even coming to campus with credit card debt in
hand. Consolidated Credit Counseling Services Inc. reports
that 20% of freshman got their credit card in high school
and nearly 40% sign up for one in their first year at college.
With the abundance of on-campus, mail and Internet card offers
giving low introductory rates, freebies, and bonus airline
miles, it’s not surprising to find that according to a 2001
Nellie Mae study 83% of all undergraduate students have at
least one credit card and carry an average balance of $2,327.
The
problem of high credit card debt has many implications for
a student. Some end up dropping out of college all together
so they can work full-time just to pay credit card bills.
If they are able to stay in school, but have in the process
ruined their credit rating, it can affect their ability to
rent an apartment, afford insurance and even get the job that
will help them to pay off their debt. Even relationships suffer
as a result of financial stress. There is also a psychological
affect on students. The stress can lead students into depression,
and in a few cases has been a contributing factor to suicide.
Of
course it hasn’t always been like this. According to Dr. Robert
D. Manning, Professor at Rochester Institute of Technology
and author of Credit Card Nation, in the late 1980s student
credit card limits were around $300-$500 and parents were
required to co-sign. But when credit card companies began
making a lot of money during the 1991 economic recession,
they started looking for new markets and found it in the student
population. Issuers dropped the co-signing requirement and
started raising limits, which, when combined with parents’
increasing financial pressures and higher costs of education,
gave students a way to fund themselves through college.
And
students are an easy market to tap into. In his article “Credit
Cards on Campus,” Manning writes, “Credit card companies encourage
fantasies of easy money because students are so profitable:
teens have financial naiveté, high material expectations,
and responsiveness to relatively low-cost marketing campaigns,
high potential earnings, and future demand for financial services.”
Credit
companies advertising to the vulnerabilities of young students
is not the only factor that goes into the current trend. Most
students simply have not received the education in personal
finances and credit card management that they need to meet
the onslaught of offers. According to Consolidated Credit
Counseling Services, Inc only 15% of high school students
take a personal finance class. And, according to the Jump$tart
Coalition for Personal Financial Literacy, a non-profit organization
which promotes financial literacy at the K-12 level, parents
for a variety of reasons are not talking to their children
about the privilege and responsibility that goes along with
using a credit card.
Dr.
Carol Carolan, Executive Director and Founder of the Center
for Student Credit Card Education, says that the single best
thing parents can do to help their children avoid the pitfalls
of credit card debt is educate them. Parents need to talk
to their children about it early on and regularly. Dr. Carolan
suggests the following tips for parents.
- When
a child has reached an appropriate level of maturity and
understanding of personal finances, co-signing a credit
card can be very beneficial.
- Get
a credit card with a low limit and no annual fees (visit
the "Card Reports" section of our website to comparison
shop for student credit cards).
- Discuss
with your child the details of the credit card including
interest rate on purchases and cash advances. Review all
the expenses every month.
- Show
your child what finance charges might apply if the balance
is not paid in full and on time. This includes any interest,
fees, and penalties
- Be
a good role model.
Experts
don’t all agree on the appropriate age for a first credit
card. Dr. Manning, for instance, argues in his article Credit
Cards on Campus that having them at an earlier age may actually
result in fewer debt problems later on.” Other experts argue
that waiting until the junior or senior year in college is
best. The bottom line parents need to realize is that once
students reach the college campus, they will be inundated
with credit card offers and will be able to get a card regardless
if they are supported financially solely by their parents.
And
talking with students involves more than mere calculations
of fees, interest rates, and balances. Students need to understand
the messages they receive through advertising, the difference
between a want and a need, as well as the lure of money. Give
students a healthy, realistic perspective of money and material
possessions and they will be better equipped to make wise
decisions.
Universities
and colleges play a huge role in the current trend of high
student credit card debt. Some invite credit card issuers
onto campus because they receive revenue as well. But others
are starting to recognize the problem and are restricting
the activities of credit card companies on campuses. Manning
states in his book Credit Card Nation, that “During the academic
year 1999-2000, over 400 colleges and universities formulated
official policies against on-campus credit card marketing
and nearly 600 other schools are considering similar restrictions.”
Some
institutions like Rochester Institute of Technology (RIT)
and the University of Central (UCA) Arkansas are even beginning
to require classes in personal and consumer finances. Mary
Ann Campbell, CFP, professor of personal finance at UCA and
professional speaker with Money Magic, Inc., has a mission
to educate students, educators, and adults about money. She
is currently working on her dissertation about college students
and credit card debt. Campbell is researching the best methods
of reaching college students through a high impact presentation
warning them of the perils and privileges of plastic. Like
other experts, Campbell is not against students having credit
cards. In fact, she says it is easier to get one as a student
and can help them build the good credit history needed after
graduation. But students do need to be educated. Campbell
gives the following tips and reminders for students.
- There
is true magic to compound interest when it’s working for
you (as in an investment or savings account), but true devastation
when it’s working against you (as in credit card debt).
Even when you buy something on sale, the interest alone
can double the price.
- Account
for everything. Keep records of each credit card including
the interest rates, fees, balances, due dates and purchases.
Campbell suggests a good way to do this is to setup a spreadsheet
in Excel. This will also keep you organized so you don’t
miss another payment.
- The
only way to get out of debt is to stop charging and always
pay more than the minimum. If more than one credit card
has an outstanding balance, then begin paying off the one
with the highest interest rate first, then go to the next
highest interest card, and so on.
- If
in trouble, talk about it with someone you trust and respect.
This could be a parent, teacher, or friend. Hiding it doesn’t
make it go away.
- Credit
scores can make all the difference in the world for good
or bad. It can take many years to recover from a bad credit
score.
- Learning
to use credit cards responsibly is a gift. Seek to gain
knowledge and wisdom. Credit is a privilege and it is the
student’s personal responsibility not to let it become a
peril. Campbell says, “The magic comes from you.”
- While
in college, students need to think outside the box, but
live financially within the box.
Credit
cards can be an invaluable tool for a student. While providing
security and convenience, if used wisely a student will build
the good credit rating that is needed to secure other consumer
loans, jobs, and lower insurance rates after graduation. Dwayne
Blew, a member of CreditBoards, a forum dedicated to credit
issues, is one example of a student who didn’t buy things
he didn’t need and paid his credit card balance in full each
month during college. Now he is reaping the benefits of a
good credit score. Dwayne says, “One of the reasons you’re
going to college is to improve your lifestyle once you graduate.
After putting so much effort into school, why let something
small like a credit card end up ruining it all?”
Many
excellent resources exist to help students both avoid and
get out of the credit card debt trap.
- Comparing
credit cards is an important step in finding the best one
to suit your needs. CardRatings.com makes this search simple
and easy by allowing you to research the best rated student
credit cards.
- Consider
utilizing the services of a nonprofit credit counseling
service. Be very careful when considering a credit counseling
service, though, as many counseling services are scams,
including nonprofit services.
- Consolidated
Credit Counseling Services, Inc. has a free, downloadable
Budgeting Guide for students.
- Dr.
Carolan has written a booklet titled The ABCs of Credit
Card Finance – Essential Facts for Students that can be
ordered online and it will be mailed to individuals free
of charge.
- Message
boards or forums are a great source of information. You
can post questions, concerns, or comments and a real person
will respond with real life information. Campbell says they
are a gift and can even become a support group. You can
join the CardRatings.com Message Board for free.
- Even
if your school doesn’t require a personal finance class,
take one if it’s offered.
- http://www.debtsmart.com/,
created by Scott Bilker, author of the best-selling books
Talk Your Way Out of Credit Card Debt, Credit Card and Debt
Management, and How to be more Credit Card and Debt Smart,
contains several tools to help consumers deal with credit
card debt.
The
financial decisions students make in college have a long lasting
impact on their future. They are learning how to use and manage
various financial tools vital for life in the “real world”.
When used wisely, credit cards are one tool that can open
the doors for a life unencumbered by financial burdens.
Amy
L. Cooper-Arnold has been a staff writer for http://www.cardratings.com/
since 2004. Her articles have been republished by respected
publications throughout the country, including Young Money
Magazine, E/The Environmental Magazine and About.com. Amy
recently graduated with honors from Austin Peay Univ. and
is currently taking graduate-level classes
Article
Source: http://EzineArticles.com/?expert=Amy_Cooper-Arnold
The
information supplied on this page is by a third party and
jml Property Services do not take any responsibility to its
accuracy ©jmlpropertyservices01/06
(see
also Credit Scoring & Credit References)
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