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Where
can I get the best terms on a student card?
Bankrate lists national
and regional credit card issuers. Most student cards come with
starting credit lines ranging from $500 to $1,000. In our latest
survey, interest rates on student credit cards range from 10 percent
to 19.8 percent. Those rates are OK -- not as good as adults with
good credit, not as bad as people who have already mishandled credit.
All of the ones at the low end of the scale are variable rate cards,
so you can expect them to rise. We're in a very low rate environment
now. 
I'm
over my head in credit card debt. What do I do?
Start by assessing the damage. Make a list of all creditors, noting
balances, credit lines, interest rates and monthly payments.
Track expenses. How much money comes
in and how much goes out each month? Where's it going and why? Are
there places you can scale back spending and free up more money
for paying down card debt.
Stop charging up those credit cards.
Pay with cash or debit cards instead.
The best way to pay down the card balances
is to zero in on one card at a time. Pay $25, $50, $100 or whatever
you can spare on top of the minimum payment. Minimize interest costs
by transferring balances to the card with the lowest interest rate.
From a dollars-and-cents standpoint,
it makes the most sense to pay down the card with the highest interest
rate first. Once that first balance is paid off, focus on the card
with the next smallest balance and so on. Check out this step-by-step
explanation of how to do that.
If you've been a good card customer and
always paid your bills on time in the past, you may want to call
your issuer and ask for a lower rate. Many times, card companies
will, if pressed, cut a break for a student because they want to
keep the young debtor for life. A student who slips up once on a
card payment, for example, may be able get that late fee waived
with one quick phone call. It's definitely worth a shot.
If you're way over your head in debt,
talk to a credit counselor from a Consumer Credit Counseling Service.
There are about 1,400 of them across the United States, and it's
a common enough problem that there's an office near most large college
campuses.
As
a parent, don't I have a say in my child's use of credit cards?
Only your power of persuasion.
Students arriving on campus are inundated
with card offers. Card companies can, and will, issue one to almost
any student 18 and older. The companies that have deals with the
colleges have card tables set up on campus, offering free hats and
T-shirts for students willing to sign an application. Credit card
applications are stuffed into their bags when they buy books, or
stacked near bulletin boards.
What
can I as a parent do?
Too many parents don't talk to their children about money. The best
thing that parents can do is to talk to your children about wisely
handling debt before they head off to campus. Agree to the rules
and warn them of the pitfalls of improper use of credit.
Here's a start-them-slow solution: Parents
may ask their card issuer to authorize an additional card for the
student. There are also cards available to parents who can link
a child's card to their accounts, or where they can keep refilling
the teen's or student's accounts as they go along. It's a way to
keep up with what's going on and limit spending but still provide
the freedom and convenience of a card.
If your student is like most, and has
a credit card, discuss the issue. When is its use allowed? Only
in an emergency? Discuss what makes an emergency (Here's a hint:
It isn't Friday night pizza.)
How
long does it take to pay back the debt?
Let's look at an example using the true
cost of paying the minimum calculator from Bankrate.com.
Let's say you've got a $2,000 balance
on a credit card with 16 percent APR and 2 percent minimum payment.
If you only make the minimum payment it will take you 291 months,
that's more than 24 years, to be rid of your debt. In that time,
you will pay $3,329.14.
What
happens when I fall behind on payments?
A card issuer will jack up your interest rate and charge you hefty
penalty fees. A negative mark will be placed on your credit report
and stay there for seven years.
A bad credit rating can affect your ability
to rent an apartment or buy a car or house. The mark stays on your
credit record even if the bill is later paid in full, and insurance
companies and employers may also check credit reports.
Some cash-strapped college students with
big credit card bills end up cutting their course loads. The reason?
They need to start working or work more hours each week to pay their
card bills. Other students are forced to drop out of school until
they can get their debt under control.
It's also important to note that studies
show that 50 percent to 60 percent of college students with credit
cards -- or their parents -- pay off the balance in full each month.
So plenty of college students graduate without racking up credit
card debt.
How
many college students have credit cards?
According to Nellie Mae, more than 83 percent of undergraduate students
have at least one credit card.
Although freshmen have the lowest rate
of card possession among undergraduates, more than 54 percent carry
a credit card. The percentage of students with at least one card
increases to 92 percent in sophomore year.
Ninety-six percent of graduate students
carry an average of six credit cards.
The average student credit card balance
is $2,347.
Graduating students have an average of
$20,402 in combined education loan and credit card balances. Sixteen
percent or $3,262 of that debt, for final-year undergraduate students,
is from credit cards. Graduate students carry balances of more than
twice that.
Why
is it so easy for college students to get credit cards?
Credit card issuers realize that parents can be counted on to bail
out students who run up balances or fall behind in payments.
Credit card issuers want college students
as customers because students tend to be loyal to their first credit
cards, and they will keep on charging on those cards long after
graduation.
Why
do so many college students get into trouble with credit cards?
Robert Manning, author of Credit
Card Nation, reports that the four primary contributors
are the extension of unaffordable credit lines, increasing education-related
expenses, peer pressure to spend and financial naïveté.
But there are signs that the word is
getting around on college campuses. The median debt level among
card-carrying undergraduates -- where half the population has balances
lower than this amount and half have balances higher -- has risen
to $1,770, up from $1,236 in 2000. This is an indicator that more
students are using their cards regularly and may not be paying off
the balances each month.
Should
college students avoid credit cards altogether?
No. Despite the dangers of debt, credit cards aren't all bad. In
fact, graduating from college without a credit card may not be a
good idea.
It's easy to forget the upside of signing
up for a credit card as a college student, namely establishing credit.
Making the leap from college to the real world is going to be a
whole lot tougher without a credit history.
Without a credit card, you can't rent
a car or get a good car insurance policy. You could get turned down
for an apartment when a potential landlord checks your credit history
and finds nothing there. Or you could be asked to shell out an enormous
deposit before moving in.
Once you graduate, getting a credit card
will be more difficult. Let's say a pre-approved credit card offer
does comes your way. There's a good chance you'll be turned down.
The reason? The lack of a revolving credit account on your credit
report.
Used well during college, credit cards
can help a student establish a respectable credit history. Gerri
Detweiler, author of The
Ultimate Credit Handbook, puts it this way: "The best
reference you'll find on a credit report is a major credit card
paid on time, all the time."
Graduating with a couple of years of
on-time credit card payments showing in your credit report saves
you a lot of time and money after graduation. But you don't need
a lot of cards to build credit. One or two low-limit cards is enough.
Just stay within your credit limit and pay your bills on time every
month.
How
do you establish a good credit history as a college student without
racking up a whole bunch of debt?
Here are five basic steps for using credit
cards to build a credit history:
1. Map out a spending plan.
The best way to manage your money over the course of a semester
is to sit down and map out a budget. List sources of income, such
as scholarships, loans, money from summer jobs and cash from your
parents as well as expenses, such as tuition, books and groceries.
2. Go slowly.
Get one card with a low limit and use it responsibly before you
even consider getting another. You don't need a whole bunch of cards
to build credit. One or two low-limit cards is more than enough.
What matters is that you pay your bills on time every single month.
Your goal is establishing a solid payment history. Graduating with
a couple of years on-time credit card payments should do the trick.
3. Use credit cards sparingly.
Once you get into the habit of reaching for a Visa, it can be hard
to stop. Avoid using credit cards for small purchases, such as sodas
and snacks. Who wants to pay interest on a bag of Doritos?
4. Set your own credit line.
Afraid you'll spend as long as there's room on the card? Call your
credit card company and request your credit limit be lowered. Keep
at it. Card companies will try boost up your credit lines so you
spend more. Tell them "no" each time they try.
5. Avoid cash advances at
all costs.
Taking out $200 cash advance on your credit card when you're in
a money crunch is a really bad idea. You'll pay an upfront fee
of 2 to 4 percent on the amount you withdraw and you'll be stuck
paying a high interest rate, often in the high teens or higher.
And because there's no grace period on a cash advance, the interest
charges will begin to mount as soon as the money comes outs of
the ATM. You can rack up all kinds of debt in a hurry with just
one or two cash advances in a semester. Avoid them.
How
do you get a good deal on a student credit card?
Study the terms and costs of any offer before signing on. Here are
some key questions to ask:
Does the card have
an annual fee? If you're looking for a no-frills, low-rate
card offer, there's no reason to pay an annual fee. Avoid cards
that charge them.
What is the card's
APR? The lower the interest rate, the less money you'll pay
when you carry a balance. Does the card come with a super-low introductory
rate? How long does the teaser rate last? Will you be able to pay
off your card balance before the teaser rate expires?
How long is the
card's grace period? Most cards offer grace periods to customers
who pay off their balances each month. A grace period is the period
after a purchase is made during which interest is not charged. If
payment is made in full by the end of the grace period, no interest
is charged. But if only a partial payment is made, interest kicks
in at the end of the grace period.
Many issuers have whittled down the interest-free
grace periods on credit cards from 25 days to 20. Some credit cards
have no grace periods at all, which means the interest clock starts
ticking after every purchase. Avoid them.
What are the card's
penalty policies? While nobody plans on missing a credit
card payment or going over the limit, it's important to realize
what will happen if you do.
Penalty rates and fees are on the rise.
Some card issuer's policies are quite severe. Be sure to check.
Pay careful attention to what will happen if you pay late during
a card's introductory period. Will that super-low teaser rate disappear
after one little mistake?
Don't overlook credit cards available
from credit unions on campus. These cards tend to have more consumer-friendly
rates and fees.
Be sure to check out Bankrate.com
latest survey of credit card offers for college students.
Posted: Aug. 15, 2002
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