College Survival Skills: The Truth and Consequences of Credit Cards

You may be among the thousands of high school and college students who are in debt with their own credit card! Here is an eye-opening fact: College freshmen who have credit cards tend to double their debt by their senior year.

College campuses provide prime targets for new customers, with credit card companies offering free T-shirts, pizza, even I-Pods to entice students. The U.S. Public Research Interest Group, or USPIRG, released a survey of 1,500 students at 40 colleges in 14 states, in which 76 percent of students said credit cards were marketed to them through tables set up on campus – and nearly a third of those students were offered a free gift for a completed credit application.

See Where You Fit

In another recent survey, 84 percent of undergraduates had at lease one credit card and half said they had four or more cards. Undergraduates are also carrying record-high credit card balances. The average balance is $3,173, the highest in the years this study has been conducted. Twenty-one percent of undergraduates had balances of between $3,000 and $7.000. College seniors are graduating with an average debt of $4,100, with one-fifth of seniors carrying balances of more than $7,000. Only 17 percent said they regularly paid off the balances on their cards each month -- and 60 percent were surprised at how high their balance had reached.

Credit card debt is hard to get out from under. Let’s say you have a balance of $2,500 and you pay $50 a month at 19.9 percent interest per year. It will take you more than nine years to pay that off. Even if you pay a hundred dollars a month, it will still take you almost three years to pay off that same balance. If you miss a payment, you most likely will pay a penalty, increasing the length of time it will take to pay off your debt.

Don’t Let the Free Stuff Blind You

Credit card debt creates a financial hardship at a point in your life when you should be preparing for the future. Here are some tips to help you avoid deep credit card debt:

• Shop around before getting a credit card and avoid on-the-spot temptations of free gifts or rewards for completing an application. If you really need a credit card, look for one that offers an APR of fifteen percent or lower; no annual fees; and no universal default clause…where a credit card company claims the right to impose penalty rates if you are late paying another creditor or utility company.
• Read the fine print before you sign. Make sure you don’t agree to a low “teaser” rate, which will balloon to a high one after 90 days.
• Use credit cards sparingly and avoid using them for day-to-day expenses like pizza, groceries, or gas. Pay cash for your everyday expenses as much as possible and keep the card for true emergencies or major purchases that invest in your long-term goals.
• Pay balances in full every month to avoid finance charges. If you must run a balance, make the largest payment possible each month. Always pay more than the minimum required.
• Make your payments early – at least 7 to 10 days before they are due to avoid late charges. Also…keep a close eye on the due date. Some companies have been known to change the due date without notice, which may result in a late payment and late fee.
• If you miss a payment, be aware that many credit card companies raise their interest rates to as much as 30 percent. Ask, before you sign up, what the penalties are for late or missed payments.
• If you feel your interest rate is too high, call the company and ask for a lower rate. It’s cheaper for companies to keep a customer than find a new one…in the USPIRG survey, of the customers who called, half lowered their interest rates by a third or more.
• If you are having a problem paying your bills, get help – don’t wait until you are in default, which is very serious. Your school may have a financial advisor with whom you can consult …or contact a reputable credit counseling service. Avoid offers of debt or credit counseling services offered through TV ads, telemarketers or other advertisements. You can find credit counseling services by logging on to the NYS Banking Department’s Web site, which lists reputable debt counseling services at www.dfs.ny.gov/about/whowesupervise/sibudget.htm. You may also call them toll free at 1-877-BANKNYS (1-877-225-5697).

Make credit work for you…NOT the other way around.

Updated: 5/18/2009