College is the last carefree step before real life begins. Ideally, students should fall asleep each night thinking only of the English exam tomorrow morning. They should still be living in a world where although they can’t afford much, at least they’re not yet worried about paying a mortgage, most forms of insurance, utility bills, or the college loan allowing them to get an education.
Unfortunately, for many college students this is not the case. Many are already burdened with high credit card debt, in some cases over $7,000. With the abundance of on-campus, mail and Internet card offers giving low introductory rates and freebies, it’s not surprising to find that according to a 2004 Nellie Mae study 76% of all undergraduate students have at least one credit card and carry an average balance of $2,169.
As a result of high credit card debt, students have lower GPAs and a higher drop-out risk. Some ruin their credit score making it difficult to rent an apartment, afford insurance or get a job. Even relationships and mental health suffer. But with increasing education costs and no co-signing requirements, credit card issuers have found students an easy market to tap into.
A large part of the problem is that most students simply have not been taught how to handle credit cards. According to Consolidated Credit Counseling Services, Inc., only 15% of high school students take a personal finance class. And parents for a variety of reasons are not talking to their children about the privilege and responsibility that go along with using a credit card, according to the Jump$tart Coalition for Personal Financial Literacy, a non-profit organization that promotes financial literacy at the K-12 level.
Even though some universities and colleges invite credit card issuers onto campus because they receive revenue as well, others are starting to recognize the problem and taking action. Robert D. Manning writes in his book “Credit Card Nation,” that “During the academic year 1999-2000, over 400 colleges and universities formulated official policies against on-campus credit card marketing and nearly 600 other schools are considering similar restrictions.”
Some institutions such as Rochester Institute of Technology and the University of Central Arkansas (UCA) are even beginning to require classes in personal and consumer finances. Mary Ann Campbell, CFP, professor of personal finance at UCA and professional speaker with Money Magic, Inc., has a mission to educate students, educators, and adults about money.
Like other experts, Campbell is not against students having credit cards. She just wants to see students educated. She gives the following tips and reminders.
- Use a spreadsheet documenting each credit card. Include interest rates, fees, balances, due dates and purchases.
- The only way to get out of debt is to stop charging.
- Always pay more than the minimum.
- Pay off the credit card with the highest interest rate first, then go to the next highest interest card, and so on.
- Talk about money management with someone you trust and respect.
- Compound interest can double the price of your purchase.
- It takes many years to recover from a bad credit score.
Dwayne Blew, member of CreditBoards.com, is a former student who only bought what he needed and paid his balance in full each month. He says, “One of the reasons you’re going to college is to improve your lifestyle once you graduate. After putting so much effort into school, why let something small like a credit card end up ruining it all?”
Many excellent resources exist to help students avoid the credit card debt trap:
- Download the booklet titled “The ABCs of Credit Card Finance – Essential Facts for Students” by Carol Carolan, executive director and founder of the Center for Student Credit Card Education
- Join the CardRatings.com message board to receive real-life answers to real-life questions.
- Take a personal finance class.
- DebtSmart.com, created by Scott Bilker, author of the best-selling books “Talk Your Way Out of Credit Card Debt” and “Credit Card and Debt Management,” offers tools to help consumers deal with credit card debt.
Amy L. Cooper-Arnold is a staff writer for CardRatings.com, a website that provides free consumer ratings of credit cards. She recently graduated with honors from Austin Peay State Univ. with a degree in English.