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Credit card debt and the college student an unhealthy cocktail

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It is back to school time and many college students are discovering they are easy prey for the credit card companies.

One former student told me, “I once signed up for a credit card simply because they were giving away free T-shirts that I thought looked cool.”

Young adults need more information about credit cards and debt than ever before. Credit cards for most students are dangerous. It is important to understand and know how to use credit to your advantage so as not to be caught off guard by skyscraper fees and interest rates at the end of the month.

Here is helpful information on student credit:

How many students have credit cards?

Over 80 percent of college students have at least one credit card. More than 50 percent of freshmen carry plastic, and by sophomore year, over 90 percent have credit cards. Graduate students are no different.

Why are there so many credit card companies issuing cards for students?

Credit card companies know that when students cannot pay their balances, they have parents that can save them.

Are credit cards bad for college students?

Credit cards should not altogether be avoided by college students because they can help them rent a car and get a good car insurance policy, as well as provide emergency funds. Establishing a good credit history is important and needed after college. It is wise to get a credit card while studying and make sure the credit card is paid on time.

What happens when a student cannot afford to pay on time?

Usually credit card companies will increase the interest rates, as well as charge a penalty if a student falls behind on his or her payments. This will leave the student with a bad credit history, and will be seen in the report for as long as seven years.

How can students manage finances so as not to fall heavily into debt?

Students should keep track of their money by mapping out a budget and listing all sources of income as well as every purchase and expense they make.

How can you tell if a credit card company is giving you a good deal?

Before signing any contract or application, the terms, interest rates and hidden charges should be clear and students should also look for cards, which offer interest-free grace periods.

What is the role of the parents when it comes to their children’s student credit?

Parents should encourage their children to spend money wisely and teach them to handle debt before they start college as much as possible.

Is taking a cash advance a good idea?

Cash advances should be avoided. Not only will you pay interest from the time of withdrawal, cash advances will leave you with high paying interest rates.

Is it worth it to use credit cards in paying for small amounts so that the points will accumulate and I will be entitled to nicer gifts towards the end of the month?

Sure, there are credit card companies that offer gifts depending on the number of points the client has accumulated, but paying using plastic for just about anything should be avoided because you will still have to pay interest rates.

What are penalty policies?

Should a client fall behind on his or her payment, credit card companies usually charge sky-high penalty rates and cancel their low-rate offers.

Students should know how to manage finances and should be aware of the consequences should they miss payments of their credit cards before they go to college and apply for credit. It is the key to a financially stress-free life in the future.

Indiana University has started a new credit awareness program for its incoming freshman. If you get a financial aid package from IUPUI they will insist that you take this debt awareness course.

Dr. Jesse Brown is a wealth management and wealth preservation specialist. He is a best-selling author of the book “Investing in the Dream-Wealth Building Strategies of African-Americans seeking Financial Freedom,” and “Pay Yourself First – A Guide to Financial Success.” For questions or comments about this column, email browncolumnrecorder@aol.com.

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