Student Credit Card Tips for Parents (Part 4)
Written by Curtis Arnold
Posted On: November 21, 2008
Editor's Note: This article is the third in a four-part series containing consumer tips for parents of children and young adults.
I often speak on college campuses, and here’s what I tell the students: I know first-hand about the dangers of getting into credit card debt while you’re in school. Before I turned my life around, I had $45,000 in card debt and was under unbelievable stress. You probably have a credit card already, and if not, you will likely get one soon. Certainly, if lenders get their way, you’ll have a pile in your pocket by the time you graduate!
Three out of every four college students had at least one card in 2004, with the average freshman balance at $1,585, while many students maxed out their cards entirely, according to Nelliemae, the largest nonprofit provider of student loans. The typical undergrad card balance was $2,169, although newer estimates put it closer to $3,000. According to a recent poll, one in four college students has two to three credit cards, and nearly one-third say it’s difficult to keep up with expenses because they’re already in debt.
Card issuers spend millions each year aggressively marketing on campuses because they want to develop long-term financial relationships with you. Here are my tips for making the most of the situation:
1. Compare offers by reading the terms and conditions carefully. Choose the best card for you, regardless of the freebies. Ask for a low credit limit (around $500) so you won’t be tempted to charge more than you should, and steer clear of reward cards until you know you can use credit responsibly. (Studies show we charge more with them.)
2. Always pay your bills on time – not to do so means you’ll pay fees and a higher interest rate – potentially on all your debts. A spreadsheet can keep you organized and on time with your payments. If you might forget, consider signing up for automatic bill-paying.
3. Always pay off your balance. The first month you don’t, stop using your cards! Use only cash or a debit card until you’re sure you’ll use your cards responsibly.
4. Don’t use your card as a source of income. Take it from me, I know first hand how devastating this can be. Credit is a privilege, and it’s your responsibility to make sure it doesn’t become a peril and ruin your credit reports and credit scores.
5. Keep out of the malls, avoid impulse buying and focus on free activities – join campus organizations, volunteer for local nonprofits, take a hike . . . or you can always get a job.
6. Take a personal finance course ASAP. What you learn will be more important and practical for your future than what’s covered in most classrooms. Also, keep on top of credit news, so you’ll be aware of industry practices. For example, lately, banks have been lowering people’s credit limits.
7. Already in debt? Stop charging and always pay more than the minimum. If you’re carrying a balance on more than one card, you’ll save the most if you pay off the one with the highest rate first, then go to the next highest interest card, and so on.
8. Get help if you’re buried in debt. Not facing financial problems won’t make them go away. Talk to your family, a clergy member, a credit counselor (NFCC.org lists reputable counselors), someone on campus – anyone you trust who can help you figure things out.
Not to worry! Since you’ve already educated your kids about credit and debt, you won’t have to worry about problems like this when they’re off at college, right?!
To sum things up, giving credit to teens can be a double-edged sword. If handled properly (a good dose of parental involvement goes a long way), credit can really empower your teen and help your teen establish a firm financial footing. On the flip side, improper use can have a devastating financial impact on your teen and scar him or her for many years.
Given the importance of credit scores in our society today (a bad score can even prevent your teen from getting a job), I implore you take the initiative and help your teen develop positive credit habits. If you don’t, I can assure you your teen will likely be fighting a losing battle…one that all too often has deadly consequences. Good luck- you can do it!
You can also visit our student credit cards section to research the best student cards!
Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of "How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line" (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contribitor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 RulesTM for Driving Success With Books (Super Star Press, January 2009).