Ramen Noodles: A cheap meal, best served hot, dusted with seasoning and cooked for one minute. Stir and serve. It isn’t a dish that is easily botched — fine gourmet dining at a reasonable price. The only problem — pouring the seasoning in before cooking is a terrible mistake.
Some college students have even more difficulty getting the recipe right in their finances. Some can’t manage the financial responsibilities needed to pay for a college education. Despite generous increases in financial aid allotments, an education requires more planning than it did in the past. Direct financial aid is usually enhanced by money that students earn or borrow.
Importance of Credit
Whether students like it or not, living in today’s world demands the use of credit. The buyers of homes, cars, major appliances, and even investments rely on having a good credit history.
For many students, college is the first major landmark on the path to independence. Moving away from home means no curfews and no prying parents. It also means the liberty-seeking college kid is now free to make his own mistakes. In such an environment, money management becomes an issue. Knowing how to avoid these problems is the key to beating them.
Causes for Concern
Today’s students face a crisis. A 2004 Nellie Mae study shows that 76% of all undergraduate students have at least one credit card and carry an average balance of $2,169. They must learn to manage their debt. But most young adults are not wealthy enough to avoid liabilities. They must borrow. Usually, loans are part of an financial aid package. Loans are offered at or below market rates and have terms so generous and forgiving they seem to require little discipline. If the paperwork is kept current, paying them off can be temporarily deferred after graduation.
Student loan terms are generally easier on the borrower; but they don’t necessarily teach a person how to manage debt. If a student owes $15,000 in loans, he may not feel overwhelmed. However, if $5,000 is owed on a past due credit card balance, he is likely headed for serious trouble. College lenders are more likely to renegotiate the loan terms, a credit card company may not be so willing to do the same.
College students’ credit card debt is epidemic. Cards are easily obtained with low introductory interest rates and high credit limits. Free gifts are sometimes used to encourage students to apply for cards. Some students become part of the problem by convincing their peers to sign up so in order to reap a commission.
Stolen cards are also a major issue not only on college campuses but in the real world. Unfortunately, credit card fraud is a very common experience for students. “I had my card stolen and it was the worst experience. I even spent the extra money to get my photo on the card so this wouldn’t happen,” said University of Hartford junior Teri Connolly.
Credit card companies often set up promotional booths on campuses, offering T-shirts and other items for opening a new account. Although the card benefits can seem fantastic, students must review repayment terms carefully. Some companies do not warn students about potential debt problems.
Promotions for credit cards are found on classroom bulletin boards, in restaurants, bars and mailboxes. But students do not have to fear credit cards. Sooner or later, everyone has to learn how to use them, and college is a good time to start.
Credit Management Solutions
Paying your account balance in full every month will help you build a good credit standing and avoid interest rate charges. Here some more suggestions to help students learn how to manage their credit:
1) Compare credit card fees. You may pay a variety of charges to use credit cards, including annual fees, late fees, over limit fees and transaction fees. Learn about hidden fees to find the best lender.
2) Understand credit card statements. Check every statement for correct information, including purchases, credits and payments. Act quickly to correct errors.
3) Make payments on time. Consequences of missing the due date include higher interest rates on future purchases for all credit cards, and late fees until your account is brought “current.”
© 2008, Young Money Media, LLC