Students, credit card debt

In 2004, 78 percent of undergraduate college students began the school year with credit cards, states a report released by Nellie Mae. The report also said that the average outstanding balance on undergraduate credit cards was over $2,000.
Whether or not students with credit cards are a dangerous combination still stands for debate between financial experts, but some agree that if students are choosing to take on the responsibility of carrying plastic cash in their wallet, there are some simple steps that may help them avoid credit card debt.
“Since not having a credit history makes post-college life more complicated and more expensive, it is worth considering a credit card during your college years,” said Dara Douguay, author of the book, “Don’t Spend Your Raise.”
Douguay also points out that once students get credit cards, it’s important for them to remember the rules of wise credit card usage.
Amy L. Cooper-Arnold, staff writer for CardRatings.com, agrees with Douguay. In her report, “Avoiding Credit Card Debt”, Arnold says, “We all know the key to good health begins with a dose of prevention-your financial health is no different.
“By taking a few steps of prevention today, tomorrow your finances will have a clean bill of health,” she said.
Arnold advises students to keep the right perspective, manage their finances, shop for the right card, read the fine print, know their interest rates and pay off balances on time.
She also said that early education about personal finances before students can qualify for credit cards is another good preventative method.
“Statistics show that students are entering college without ever having a personal finance class or knowing how to balance a checkbook,” she said. “Yet once students arrive on campus credit card issuers are eager to sign them up.”
Nellie Mae reports say that more than 50 percent of undergraduate freshmen surveyed claimed they obtained their first credit card at the age of 18. The report also said one-third of the students surveyed with credit cards obtained their first card based on a direct mail solicitation from credit card vendors.
Parents who want to test their children’s financial responsibility came in second with 26 percent of them being the source for first cards among undergraduates.
But Arnold claims that mail solicitation and parents is not the only avenue responsible for furnishing students with high interest credit cards.
“Universities and colleges play a huge role in the current trend of high student credit card debt,” she states in her report, “Student Credit Card Debt: A Survival Guide for Students.”
Arnold claims that some universities invite credit card issuers on their campuses, but she also states that others recognize this problem and have begun to restrict the activities credit card vendors are allowed to do on college campuses.
Ashley Winston, a sophomore psychology major from California, says she fell into the rut of credit card debt due to careless spending.
“I basically fell into the stereotype of spending money I (didn’t) have,” she said. “I thought I would do better because I had a plan.”
Arnold said that students have to take control of their spending habits and credit card management skills or else they could become overcome with debt if they use credit cards to make all their purchases.
“In one sense, you need to use your credit card like cash by paying your balances in full each month,” she said.
According to Nellie Mae, 21 percent of college undergraduates reported that they pay off all their cards each month while 44 percent of them claimed to pay more than the minimum balance each month, leaving only 11 percent who said they pay less than the required minimum monthly payment.
Winston urges students who do not have any other outside income, besides refund checks, to not use their credit cards for anything else besides necessities.
“I’m almost out of my runt,” she said. “I was actually forced to pay off (my) credit cards and close the accounts.”
Winston also said she will get lower credit limits to make it easier for her to pay off her balances each month if she exceeds her spending limits.
“Every credit card comes with its own set of terms and conditions,” Arnold said. ” – it’s much easier to make payments on time – and save you from making a mistake that will affect your credit history if you only have to keep track of one or two cards.
“The problem of high credit card debt has many implications for a student,” she said. “Some end up dropping out of school – so they can work full-time just to pay credit card bills.
“If (students) are able to stay in school, but have in the process ruined their credit rating, it can affect their ability to rent an apartment, afford insurance, and even get the job that will help them to pay off their debt,” Arnold said.