Credit Card Usage & Debt Among College Students
College students have many of the same spending needs as other consumers, in addition to costly school expenses. Transportation, books, food and entertainment all require a method of payment, and credit cards are often the option that college students select. But credit card debt can be a problem for some students with many graduating with high credit card debts to go alongside their student loan debt.
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The Problem
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Credit card companies have long targeted college, and even some high school students. New federal legislation that went into effect in 2010 restricts credit card companies from issuing cards to students under age 21 without an adult co-signer or proof of income. But for older students, financially independent students and those whose parents trust them enough to co-sign, credit cards are still a common source of overspending. College students faced with a large number of necessary and discretionary spending opportunities often apply for one or more credit cards and quickly build up high balances. The freedom of using plastic and the delay in paying the bill makes it easy to overspend, especially for full-time students who have a limited income or no income at all.
Sources
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The ease with which college students can rack up credit card debt is compounded by the fact that low introductory interest rates often rise over time, increasing a student's interest payment each month and making it harder to pay down a balance. Students who miss payments incur late fees that add to how much they owe. Many colleges and universities offer financial counseling services for students, but those who don't take advantage of these services fail to learn about responsible spending. Parents and administrators who prefer to let students make their own choices, including financial decisions, may not know the extent of a student's credit card overuse until it's too late to find an easy solution.
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Alternatives
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College students can avoid the problems that come from credit card usage by finding other ways to pay for their educational and personal expenses. Students with a part-time job can use their checking account and debit card to make only those purchases that they can afford given the account balance. Students who rely on their parents for living expenses won't be able to overspend if the parents deliver the money in installments rather than large lump-sum payments. Finally, students can use student loan funds, which are limited by the lender, to pay for some or all of their necessities including books, course fees and room and board.
Tips
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College students and their parents can take some practical steps to reduce the problems that can come with credit card use. Students who draft personal budgets are more able to understand what the expenses of college life are and how to pay for them. Student credit cards, which may require a parent or guardian to serve as a co-signer, have low credit limits but still give students the convenience of using credit and a chance to start building a good credit history.
For students already in credit card debt, transferring the balance to a credit card with a lower interest rate is one way to lower the cost of interest. Credit counseling services are another option. They can help a student reorganize credit card debt upon graduation, making it easier to pay off the debt with the income from a new job.
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