College students are a prime market for lenders who often prey on student’s lack of experience and understanding of how debt works. While some colleges & universities actively restrict credit card marketing, others form lucrative partnerships with credit issuers that may encourage students to apply for cards they don’t need, or worse, can’t afford.
This topic provides a great opportunity to talk with your student about your own experience with debt – that there is good and bad debt and how each type affects your financial future.
Consider the solid advice and example below from the site: http://www.collegeboard.org/
Credit Cards and College Students
Credit card abuse has become such a problem that, in February 2010, the federal government recognized the importance of protecting college students from the consequences of misusing credit cards. They enacted legislation changing how credit card companies can do business with students.
The law bans credit card companies from issuing cards to people under the age of 18. If you’re under 21 years old, you need an adult co-signer to get a card, unless you can prove that you have the financial means to pay your bill. Other provisions in the law limit some of the fees credit card companies can charge. In response, the companies are raising interest rates to avoid losing income. Anyone without an established credit history may face the highest interest rates — this group typically includes students.
Not paying off the entire amount in your account each month can lead to big finance charges. Take the story of Joe:
Joe’s average unpaid credit card bill during a year is $500, and his finance charge is 20 percent — so he has to pay $100 in interest for the year. He pays a $20 annual fee per year, plus a $25 late fee one month (he was up late studying and forgot to mail in his check). After a year, Joe ends up owing $145 in interest and fees to his credit card company, and he still hasn’t paid for any of his actual purchases!
Be Credit Smart
Follow these rules of credit management to lead a financially healthy life:
- Consider using a debit card instead of a credit card. Money is deducted directly from your checking account, so you can’t spend more than you actually have.
- Read all application materials carefully — especially the fine print. What happens after the “teaser rate” expires? What happens to your interest rate if you’re late with a payment or fail to make a payment? What’s the interest rate for a cash advance?
- Pay bills promptly to keep finance and other charges to a minimum; pay the balance off if you can.
- Use credit only if you’re certain you are able to repay the debt.
- Avoid impulse shopping on your credit card.
- Save your credit card for emergencies – real emergencies!
For a more detailed report, visit: http://www.collegeboard.com/student/plan/college-success/9139.html