A new fall semester begins and with it brings new opportunities for the novice student to be inundated by promising credit offers that can easily lead to early financial trouble.
Joan E. Lisante, writer for www.consumeraffairs.com and mother of a college senior, knows personally to what extent these deals can overwhelm the inexperienced student in need of some extra cash to buy textbooks, pay rent, etc. Her son received 52 credit card offers in one year alone! As Lisante points out, it doesn’t matter that most students receiving these offers aren’t fully employed yet:
For credit card companies, getting the hook in early is crucial and college (or high school, in some cases) is definitely that. A 2005 report done by Nellie Mae, the student lender, found that:
¢ 76% of undergraduates had a credit card;
¢ Only 21% of college students with credit cards paid them off each month;
¢ The average balance on student credit cards was $2,169; and
¢ 25% of students owed $3000 or more.
Lisante recommends educating young consumers on using credit responsibly before they are tempted by the confusing world of credit. The Jump Start Coalition, a nonprofit which tests high school seniors on financial issues every two years, recommends that before getting a credit card, teens should have their own checking account and know how to write checks, keep the register up to date and balance the books each month.
Additionally, she says that U.S. Treasury Secretary John Snow suggests “Credit 101,” an online tutorial for college students. Topics include credit card fundamentals, how to set spending priorities and how a bad credit rating can shrink your life choices.
Consumeraffairs.Com offers specific tools to help students pick the best credit card for their needs. Lisante notes that students can also receive online help at www.CreditCardAssist.com, “which allows students to compare features of a number of cards.” Another resource, www.CreditCards.com, “lets you search categories like ˜low interest credit cards’ or ˜student credit cards.’ Then you can compare offers side by side and apply for the card of your choice online.
Lisante also offers some general advice for avoiding trouble when choosing a credit card:
¢ Check the “real” interest rate for purchases, beyond the typically below-market “teaser” or introductory rate. For college cards, the starter rate hovers around 17% but it can quickly rocket up to 29%.
¢ Find out if there’s an annual fee.
¢ Compare late fees and “over credit limit” fees. The latter can hit you before you know what happened, as early credit limits tend to be low. Often, late fees increase as the balance due goes up.
¢ Read details of the “default rate,” the rate charged if you miss a payment. There can be frighteningly high, like 30%. And you don’t necessarily have to miss your credit card payment. A policy called “universal default” lets the lender raise your rate if you miss ANY scheduled payment, like a car loan.
¢ Compare “grace periods” — the time you have to repay the balance interest-free. It’s typically 20-25 days, but “payment due” dates vary widely, depending on the card.
¢ Write “payment due” dates on your calendar and mail your check a week before to allow for postal delays.
¢ Recognize that the small print after all terms are laid out probably says something like “Rates, fees and terms of this account are subject to change at any time for any reason.” And LOOK at those small slips of paper with the microscopic type that comes with your statement. They may contain vital (but unpleasant) information.
¢ If you have two cards, one with a higher balance than the other, consider transferring that balance to the card with the lower interest rate. Lenders often entice the indebted with a zero or low-interest balance transfer rate, which can save you money if you actually pay it off (without running up a new balance on the high-interest card.)
¢ While prizes, points and rebates are nice, don’t make them your reason for choosing one card over another. Sure, they’re “perks” — which encourage you to spend more. Like carnival games: you throw $15.00 worth of balls to win a $2.00 stuffed gorilla.
So before you pursue a college degree, consider first educating yourself on the subject of credit and increase your chances of keeping those first few paychecks!
Joan E. Lisante’s article, Plastic Peril: Credit Cards and Students can be found at http://www.consumeraffairs.com/news04/2006/05/grads_credit_cards.html
Financial Basics: A Money Management Guide for Students by
Susan Knox, CPA (Ohio State University Press, 2004), $14.95
The Complete Idiot’s Guide to Money for Teens by Susan Shelley
(Alpha Books, 2001), $12.95
National Association of Student Financial Aid Administrators