Almost any day in the life of a college student wouldn’t be complete without the opportunity to apply for a credit card. Students walking through the student union receive a free t-shirt if they apply at a booth.
Those opening campus mailboxes looking for money from home pull out only credit card applications. A trip to the campus bookstore results in a bag full of brochures.
As a result of this constant bombardment of offers, many students find themselves in debt. Credit cards offer users the opportunity to buy now and pay later. But many students have found that they buy now and pay forever.
Debt is a major issue
As a student at Southwest State University, Tom Watson saw “credit stuff every single week.” He also witnessed two roommates fall into credit card debt “because of overuse and not being responsible with their money. They thought they could pay it off, but once they got their bills, they couldn’t make their monthly payment.”
Credit cards for students make sense when the entire amount is paid off immediately, when they are used for emergencies, and to establish a good credit rating. But because students have limited income, they often find themselves struggling to pay off the entire balance. Interest grows on the amount owed, and students fall deeper and deeper in debt.
Alan Sickbert, when dean of student life at the University of St. Thomas, said student indebtedness is a major issue. “One of the things that became clear to us was that many students weren’t doing well managing or handling their funds,” he said. “And mismanaging credit cards isn’t going to help you when you graduate.”
St. Thomas and other schools took steps to limit credit card solicitation on campus. Despite university policies, credit card companies can still reach students through the mail.
How do students stack up?
Many college students use credit cards cautiously, according to research by Sallie Mae and Ipsos: 33 percent of card holders had a zero balance, 42 percent had a balance of $500 or less, and just 24 percent had a balance of more than $500. Nearly one quarter (23%) of parents help pay at least a portion of their student’s credit card bill.
A website for credit card education, www.creditalk.com, includes help for students and first-time users. While many students use credit cards wisely, those who don’t could especially be in danger after graduation. In addition to any credit card debt, many students will owe on educational loans. To avoid pitfalls, students need to use credit cards responsibly.
Brad Riebel, formerly regional market manager in the U.S. Bank education loan division and now assistant Vice President, said students need to research what credit card is the best fit for them. “Students shouldn’t choose a credit card based on which one has the coolest giveaway,” Riebel said. “They should be aware of the differences in rates and fees from one card to the next, and choose the best one for their needs.”
Three things to know if you shop with the card — by Brian Dorrington
We know it’s only a matter of time before you use the card. Before you start racking up charges, know what you’re getting into.
1• If you carry a balance, your card is nothing but a high-interest loan. If you make only the minimum payment (usually 2 percent to 3 percent of the balance) each month, you’ll be paying off the debt for years and will pay a huge amount of interest.
2• You can save as much as $1,000 or more each year in lower credit card interest charges by paying off your entire bill each month or by using a check, cash or debit card for purchases.
3• The second you make your first charge with your new card, your credit scoring history begins. Your credit score is a system creditors use to help determine whether to give you credit for that house or car loan, or whether to allow you to open up a bank account.