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Credit Cards
Can Send College Students Into Debt September 1999
On many college campuses this fall, near the library,
cafeteria or dormitories, students will find tabletop displays where recruiters are wooing them with free T-shirts, music CDs or Frisbees if they sign-up for a credit card.
Even if colleges ban credit-card marketers from campus hallways or require that educational brochures on credit-card management are
distributed with solicitations, the high-pressure enticement will continue just across the street or at other popular locations, including fast-food and pizza restaurants, according to the
Consumer Credit Counseling Service of San Diego and Imperial Counties (CCCS/SDIC), a nonprofit community services organization.
"The problem we see is overspending by inexperienced
kids who think a credit card is free money and they're uninformed about the dangers of credit," said Jack Thompson, CCCS/SDIC president and CEO. "Many students,
maybe without a job or facing large school debts, can ruin their credit record by burying themselves in debt. It's an easy trap to fall into."
A University of Minnesota study said that credit-card debt can go hand in hand with stress, depression and lower academic performance. As credit-card debt increases, a student's
grade-point average goes down, the study found. According to a Georgetown University study, a growing number of students are cutting back on courses and spending
more time working to pay off their credit-card debts. About 65 percent of full-time college students have a credit card in their own name, according to Simmons Market
Research. While roughly 60 percent of college students pay their bills in full each month compared to 40 percent of all cardholders, says Visa USA, the number of students who pay
only the minimum amount each month exceeds 20 percent, up from 16 percent last year and 11 percent in 1996. Nellie Mae, one of the nation's largest student loan providers,
estimates the average college undergraduate has an unpaid credit-card balance of nearly $1,900. Harvard University's recent study of bankruptcy trends projects
that 150,000 people under 25 will declare personal bankruptcy this year. "For those young people, their first significant financial event as an adult will be considered a failure, which is
unfortunate," Thompson said.  According to Thompson, college students are a prized target for the credit-card industry. One reason, consumers are loyal to their first credit card. "Even though college students often have little or
no income, they are not considered high-risk borrowers because parents will often bail them out to keep their credit records clean," he said.
Recently, the U.S. Public Interest Research Group (PIRG)
asked students how long it would take to pay off a $1,000 credit-card debt at an 18 percent annual percentage rate (APR) by making the minimum required payment of 3 percent.
The answer: only 20 percent of all students responded with the correct answer, six years. To avoid the campus credit card trap, CCCS/SDIC recommends the following:
- Don't be dazzled by easy credit. Study the benefits and risk of credit card debt before you apply. Credit cards are convenient when you don't have cash and they're great for emergencies. But over-obligation caused by overspending can wreck your chances of obtaining needed additional credit, even student loans, later on.
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Keep a record of your card charges so you don't overspend.
- Shop around. Beware of "teaser rate deals" that jump way up after three months. Look for the best offer around. The APR doesn't matter if you always pay off the full monthly balance. But if you carry an unpaid balance, the interest rate matters a lot more than the annual fee.
- Only one credit card from a nationally recognized firm, such as Visa or MasterCard, is all you need to help you build a good credit history.
Get serious about your financial obligations. Pay the bills on time. Some card issuers charge $25 if you're just one day late. You can still build a favorable credit record without carrying an unpaid balance. If you must carry a balance, always pay as much as you can afford every month.
"Responsible use of credit cards can help college students build a credit record that will help them get car loans, home
mortgages and even employment after they graduate," Thompson said. "But it is up to students to protect themselves from unwise credit-card purchases because their future
success after graduation can be affected by their record of responsibility."
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