IN DEPTH: Credit cards prove to be a temptation to students
As thousands of USU students march across campus each fall, clubs, service projects, churches and military recruiters set up booths hoping to entice a freshman – or maybe even an upperclassman – to sign up.
Each of these booths offer fun, opportunities and a great college
experience. And, among the banners and free gifts, there are several
booths that offer the luxury of financial freedom in the form of a credit card. Not only do students get to sign up for a low introductory rate or a special, students-only offer, they usually get a complementary T-shirt or water bottle to sweeten the deal.
What many students don’t realize or remember is introductory
offers end, annual fees come around every year and small expenses add up.
Credit card companies benefit from irresponsibility, making young students common targets. When a payment is missed, interest rates can go up, bringing in more money for the companies. And, with new changes to the federal bankruptcy laws, it’s even harder to diffuse debt through bankruptcy.
Alena Johnson, a lecturer in the department of family, consumer
and human development, said that though she’s heard USU students do well with credit cards and student loans compared to other schools, some students are not ready to handle a credit card.
“When your roommates are going out to eat and you don’t have any money, it’s tempting to use a credit card,” Johnson said. “[Freshman year] is a really young age to have a card. Some ruin their credit scores.”
Dave Forand, a graduate student studying geology, said he didn’t trust himself with a credit card when he was starting college, and when he did get a credit card through his bank as a sophomore, it had a low credit limit.
“Because it was through the bank, I was able to monitor my expenses and pay for them online,” he said. “I’m in no rush to get another one or one with a higher limit. This one covers my needs.”
Forand said he usually only uses the credit card when he’s “in a
pinch,” such as when he’s traveling or is stuck with no cash. Sometimes he purchases things online because he feels the card’s identity-theft
protection keeps his credit safe. He said he racks up no more than $150 a month on the card.
Felicia McCleery, a freshman majoring in interior design, said she
only uses debit, which can be safer than a credit card, though it doesn’t
help build up a credit report, which is important when buying a house or
car or applying for a job. McCleery said that right now she’s not concerned with establishing credit, though she would trust herself to
handle a credit card properly.
StudentMarket.com, an online furniture store for college students,
includes pages on student credit and student loans. According to a press
release from StudentMarket.com, a study by a student loan provider, Nellie Mae, showed 76 percent of undergraduates started the 2004 school year with credit cards. The average balance on those cards was more than $2,000.
“At the Family Life Center Housing and Financial Counseling program, we see many USU students and USU graduates coming in for financial counseling. These students and graduates are often unable pay for basic living expenses, while meeting monthly credit card and other debts. Initially, these individuals did not calculate how much their basic living expenses, student loans, credit card debts and/or payday loans would cost them each month. They simply kept taking on more and more debt, without
planning how they would repay these debts”, said Kay Hansen, Director of Housing and Financial Counseling at the Family Life Center.
Many students expect to be able to pay off their debt after college, but Hansen said some find it hard to do.
“Another problem that students have with excessive credit debt is they often leave school with really high expectations, but find they have to start at the bottom like everyone else,” she said.
Interest rates make it even more important to manage money well while in school.
“Sometimes people have no option other than taking out student loans, but they often don’t manage well,” Hansen said.
Johnson said some things to look for when shopping for a credit card are no annual fee and a low interest rate. With an annual fee, even if a student never uses a card it must be paid for; if there is no fee, the student only pays what he or she charges.
Johnson suggests an interest rate lower than 14 percent and said to pay the balance in full each month. Jonathan Childress, a phone counselor for Money Management International, a debt counseling company, said to go for an interest rate no more than 12 percent.
“Be mindful of interest rates,” he said. “Once you sign, you’re saying yes to everything. Read the fine print. If you pay late the company can raise the interest rate.”
“At the Center, financial counselors recommend that all consumers read the fine print on all credit card and student loan applications before they sign the contract,” Hansen said in an email. “These applications explain that when you make only the minimum payment, are late on a payment, or miss a payment, that the APR (Annual Percentage Rate) charged on your debt will increase to an amount that is much higher that the low introductory interest rate that you thought you signed on for. Prior to taking on consumer debt, it is also recommended that consumers use the online debt repayment calculator called PowerPay. This tool will enable them to do advance calculations of credit card costs – before taking on excessive debt.”
PowerPay can be found at powerpay.org/login.php.
Advice listed on StudentMarket.com includes:
-Pay on time.
-Try to pay your balance in full each month. If you can’t, pay more than the minimum monthly payment.
-Review your credit reports periodically.
-Develop a steady work record.
-Keep your credit card records in a separate file.
-Immediately notify your credit card company of an address change.
-Review your statements carefully and immediately inform your credit card company, in writing, if you notice an error on a billing statement.
-ella@cc.usu.edu