The lure of credit cards need not lead to college students’ downfall

    Who wants to be paying for a couple of pizzas you bought in college at age 30? Few students anticpate this scenario in their future, but many, due to aggressive marketing by credit card companies, will graduate deep in debt. A recent report by Nellie Mae, a student loan provider that researches credit cards on college campuses, notes that the average undergraduate finishes college more than $3,000 in credit-card debt, along with an average of approximately $20,000 in student loans for a four-year graduate.

    Even before students reach college, they are overwhelmed with preapproved credit card offers in the mail.

    The Atlanta Journal-Constitution reports that most young people get their first credit card either before or during their first year on campus. Young Americans Bank, for example, has issued more than 300 credit cards to teens, some as young as 12. Many major credit card companies have cards designed specifically for college students, such as Discover, MasterCard and Citibank. At some colleges, according to the Christian Science Monitor, promotional tables for credit cards abound on freshman registration and admit days.

    “Credit card companies are all over campuses,” said Howell Edwards, the vice president of business development at the nonprofit credit counseling agency InCharge. And despite work on the part of legislators and universities to restrict the access that credit card companies have to college students, the debt only increases.

    These days, three out of four college students have credit cards, and Nellie Mae reports that 43 percent have four or more. The average balance that freshmen owe on their cards is reportedly $1,585, and that only grows with each year on campus.

    Credit cards are not all bad, as many students use them to build credit for future house or car loans. It’s also common for parents to give them to students “for emergencies.” But with credit cards, it is easy to get carried away. A card that starts out “just for emergencies” can easily turn into a card used for charging things like clothes, media, schoolbooks, or even food and alcohol. The results of such purchases can be devastating, especially if it’s tough to find a job after graduation. It turns out that Americans between 25 and 34 have the second highest rate of bankruptcy.

    Part of this is due to cardholders not paying off their bill completely each month, as companies make a fortune off of people only making the minimum payment.Look at it this way: If $1,000 is charged on a credit card with an annual rate of 17 percent, and a minimum monthly payment of $25 is made, it will take five years to pay off the loan and $500 of that would just go for the interest. And that figure assumes that you are not using the credit card while you are paying it off.

    Such debt can be incredibly stressful, as a University of Minnesota study found. The study found that as credit card bills increase, GPAs fall and students are more likely to drop classes.This problem is only exacerbated by the fact that many students don’t even know the terms of their credit cards. MyVesta, a nonprofit consumer education organization, reports that 64 percent of credit card holders between the ages of 18 and 24 don’t know the interest rate they pay.

    Of course, that might not be entirely students’ fault, because redit card terms are notoriously hard to decipher. According to the New York Times, Harvard law professor Elizabeth Warren once asked a class of her third-year students “to dissect the contract for a credit card that promised a 3 percent cash-back bonus.” By the end of the class period, they had only managed to decipher one of the terms — that there was really no cash-back bonus, only “a 3 percent reduction on the card’s 17.99 percent A.P.R.”

    But even if credit card contracts were easier to decipher, who wades through all of that paperwork before they sign, anyway? All too often it’s just easier to sign the form and struggle through the terms later.

    But why are credit card companies targeting college students, especially freshmen, in the first place? Nellie Mae says that credit card companies target students because research has shown that student borrowers tend to stay loyal to their first credit card brand for many years in the future.

    If a credit card company can gain many first-time cardholders, then they have a huge advantage in the market. A report by Senator Charles Schumer (D-N.Y.) also states that 18- to 24-year-olds often make small purchases that are likely to add up unnoticed, and are also the least likely to be able to pay off their entire monthly balance, giving the companies large profits.

    More than that, college students have one huge asset as far as credit card companies are concerned: their parents. “I think there is an assumption that even if parents are not co-signing for cards, they are a fallback,” said Marie T. O’Malley, Nellie Mae’s marketing chief. “If little Joey doesn’t come through with his payment, he’s likely to ask his parents for money.”

    Credit cards can be helpful, but only if the balances are paid off quickly and interest isn’t allowed to accumulate. Examine the terms before you sign, look for the best interest rate and try to find a card without a high penalty rate or an annual fee. If you find yourself unable to pay your bills on time, try to keep only one card, preferably one with a low credit line. In the end, remember that even small purchases can add up and affect you far into the future.

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