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PALM BEACH, Fla. -- They arrive on campus with spiffy
new backpacks and shiny new credit cards, determined to make
the most of their college years.
They
leave in debt with thousands of dollars piled on high-interest
credit cards.
"Students
figure: I'll live like I want to now and then when I get a
job it will be easy to pay it back," says Gerri Detweiler,
education Adviser for Debt
Counselors of America. "Often, it's not."
Lower-than-expected
salaries, plus higher-than-expected living expenses and hefty
student loan payments, make handling credit card debt all
the more difficult for students and recent grads.
Card
debts average $2,200 for students
The
average undergraduate has $2,200 in credit card debt, according
to Nellie Mae, the nation's largest maker of student loans.
That figure jumps to $5,800 for graduate students. Since so
many student credit cards have high annual percentage rates,
the longer these youngsters wait to pay the cards off, the
worse it gets.
Detweiler
points out that by sticking to minimum payments it would take
a student more than 12 years and $1,115 in interest to pay
off a $1,000 bill on a card with an 18 percent annual rate.
If
students fall behind in their payments, they get slammed with
high late fees. And it's easy for things to get out of hand.
Paying
on cards for years and years
Sophia
Jackson, a personal finance counselor for Consumer Credit
Counseling Service in Durham, N.C., says one of her student
clients made an $82 credit card payment on an overdue bill,
only to discover that a mere 79 cents of the payment applied
to the card's principal. The rest was eaten up by late fees
and over-the-limit fees.
"In
that scenario, you could pay on your balance for years and
years and your balance would keep going up," Jackson says.
She
adds that many of her clients are students from area schools
like the University of North Carolina, Duke University and
North Carolina State.
"It's
absolutely epidemic the debts I see with young people," Jackson
says. "It follows them into their 30s and 40s."
Card
debt hurts student loan repayments
High
credit card debt also affects a recent grad's ability to pay
student loans and to obtain other credit. The best way to
avoid this trap is for students to get by with one credit
card that has a low credit limit, and to pay it off regularly.
"One
is enough, and you should really try to keep the balance down
as low as possible," Detweiler says. "It's not free money."
BankBoston
is one issuer that actually caps the spending limits on student
credit cards at $300.
"We
know how important it is for students to develop good credit,
especially when they graduate and are looking to buy a car
or to qualify for a home loan," says Diane Greer, a BankBoston
spokeswoman.
Credit
success starts with parents
Armed
with the right information, many students are able to establish
credit and steer clear of card debt.
David
Sandor, a vice president at Visa USA, says 54 percent of college
students pay off their credit card balances every month.
"Most
tend to be responsible and use the card wisely," Sandor says.
"Some of them don't and they're getting into trouble. If a
person makes it through 18 years of life without any financial
wherewithal, it's very difficult to change their behavior
and that's why it's so important that parents speak to their
children about money management."
The
key is teaching students money management skills before handing
them a credit card. Visa,
MasterCard
and American
Express all have sites dedicated to college students packed
with financial tips and information.
"People
are not born with an innate ability to manage money," Sandor
says. "It's a skill that has to be learned."
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