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5 Ways College Students Get Into Credit Card Debt (And How to Avoid Them)
When your college student comes home for the first time this fall, they’ll likely bring an intense craving for a home-cooked meal, a dozen loads of laundry and (hopefully) a few decent grades. But what you hope won’t arrive on your doorstep this fall is your college student in credit card debt.
College students in credit card debt are no doubt a major problem nationally. According to a study by student lender Sallie Mae, more students than ever before have their own cards, and an alarming number carry a large balance. Study findings include:
• 84% of college students have credit cards
• 50% or more have at least four cards
• The average balance is $3,173
• 75% carry a balance
• 60% are surprised at how high their balances are
So just how do your students get entangled in this mess, and how do you avoid finding your college student in credit card debt?
1. They just don’t know any better. As a parent, have you instilled the right financial responsibility values in your children? Teach your kids at an early age the importance of living within your financial means and paying off credit cards in full each month. If you haven’t already done this, it’s not too late. Your college student is learning complicated lessons in chemistry, statistics and computer programming—why not tack on one more lesson in personal finance?
2. The sky is the limit with credit cards. For some college students, the high spending limit on credit cards represents unending buying power. Instead of giving your college student a credit card, give him or her debit or check card linked to his or her own account. That way, the spending limit is more strictly enforced. When nothing is borrowed, there’s no danger of credit trouble. But be sure to first educate your college student on overdraft fees.
3. Card offers abound. College students can’t walk into the student union or attend a sporting event without being inundated with new card offers. On top of that, credit card companies offer everything from pizza coupons to free T-shirts to convince them to apply. But thanks to a new law, that will soon change. Beginning in February, as part of the Credit CARD Act of 2009, students under 21 will not be able to sign up for their own cards.
4. They’re broke. It’s a cliché because it’s true. Bills for textbooks, entertainment, rent, food and utilities can certainly pile up—especially when little to no income is coming in the door. Help your college student set a monthly budget plan that includes all of their spending needs. Discuss how much money you’ll be able to provide each month, and brainstorm ideas for your college student to make some extra cash. Does the school offer paid tutoring opportunities? Could your co-ed take on a part-time job waiting tables on the weekends?
5. They don’t read the fine print. Some students get swept up in enticing introductory offers: 0% interest for 6 months or 0% interest on balance transfers, for example. By failing to read agreements in full, college students can overlook interest rates that skyrocket after a few months or a sudden no-grace period. Teach them to start reading the fine print, and work with them to identify a card that’s right for them in the long term.
