If you're a college student, you probably already have a credit card. If not, you may have plans to get one or more soon. So why should you read on?
Because financial debt is one of the main reasons that many students end up dropping out of college.
Because your college years can be some of your most memorable—and some of your most costly. They don't, however, have to be the beginning of an adult life strapped with debt.
Although you may still feel in limbo between your teen years and adulthood, it's time to take charge of your finances and manage them as an adult. The sooner you do, the sooner you'll be able to start saving and spending your own money.
For those new to credit cards and for others who know all about credit, let's go back to the basics.
Why do credit card companies court college students?
It's obvious by the friendly representatives who offer a free t-shirt or CD just for signing up in the student center. Or the applications slipped into bookstore bags. Or mail boxes crowded with card offers. Credit card companies want college students to carry their card.
Did you ever stop to wonder why? One reason is loyalty—once a person has a card in their wallet, they are likely to keep that particular card and its upgrades for years to come. Another reason: college students are good customers.
While this may seem ironic considering that most college students are without a steady source of income, Robert Manning, Ph.D., Professor in the College of Business at Rochester Institute of Technology and author of Credit Card Nation, says this is one example of how the credit card industry has changed radically in the past decade or so. "Previously, conservative rules deemed a good customer as one that paid their bills on time," he says. "Now, a good customer is one that can't repay their debt."
"Credit is no longer an earned privilege," continues Dr. Manning. "It's now considered a social entitlement, and the screening criteria (for card applicants) is weak."
Banks make money by charging annual fees, late payment penalties and interest fees on unpaid credit card balances. Therefore, card holders with revolving debt (those who do not pay their balances in full each month) are desirable. NellieMae.org illustrates this point beautifully through an example of a student with a credit card balance of $7,000 at an interest rate of 18.9%. If this student faithfully makes the minimum monthly payment of 3% or $25 - whichever is higher, and does not charge anything else to the account, it will take more than 16 years and $7,173 in interest fees to repay the bill!
Additionally, Manning notes the banking industry has learned that college students will draw upon various sources of income to pay their debt—including student loans, money from part-time jobs, and as a last resort, many will ask a family member to supply the funds to get them out of debt.
How to make credit work for you, not against you
According to Nellie Mae, 81% of college freshman have at least one credit card. And for good reason. Credit cards enable online purchases—from text books to concert tickets, make it possible to rent a car, and help with medical emergencies or vehicle breakdowns. Used wisely, credit cards can be helpful throughout college, and can assist you in the development of financial management skills.
As soon as you get your first credit card or loan, you have entered the world of credit reports and scores. A credit report is compiled by credit bureaus and contains information about your identity and credit relationships, among other things. Credit scoring is a system that lenders use to help determine your 'credit worthiness.' Credit scores are based upon your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts.
It's vital to know that your credit score affects your ability to get loans, car loans, and home mortgages. Future jobs and insurance premiums can also be influenced by your credit score. By paying your bills in full or in a timely manner, a credit card will help you establish a good credit score. Late payment or no payment will help you earn a poor credit score. For more information on credit reports and scores and how they affect you, check out CardRatings.com.
Developing a new view about credit
Mary Ann Campbell, CFP, founder of MoneyMagic.com and a money educator, cites unrealistic expectations as a major reason for high student debt.
Campbell, who teaches personal finance courses, says "Many students' expectations of their earning potential after college far exceeds what their actual income will be." She notes that some students use their credit cards with abandon during college, planning to pay off their debt when they land that great job after college. Indeed, some students forget that in order to get to the top of the career ladder, there are a few rungs, i.e., less paying jobs, they have to climb first. And the expense of starting a new job and life on your own can just add to existing debt.
Manning's website, CreditCardNation.com, contains a great resource for students seeking a more realistic view of the first few years after college. Using the 'Budget Estimator,' a module designed by Manning, students can identify an average yearly or monthly starting salary for jobs in their particular major. The program automatically figures in estimates for taxes and social security payments. Students can then plug in expenses for housing, car payments, utilities, food, insurance, telephone and internet bills, clothing, credit card bills, student loan payments, and entertainment, etc. The module lets you know when you have spent more money than you make, and allows you to adjust payments as necessary until you get the hang of how your money is best distributed.
Students that seem to have the most credit woes? Those who believe their standard of living during and after college should not vary from when they lived at home on their parents' income. Cable television, cell phones with cameras, and new cars become 'necessities' instead of nice extras.
Advice to grow on
When it comes to credit cards, students have great advice for other students. Heather, a college junior from Arkansas, recommends getting one card with a low limit. "This limits the amount of credit you have access to and therefore removes the temptation to spend more than you have or more than you can pay off immediately," she says.
Another student recommends selectivity. "Don't sign up for a card that charges an annual fee to use it, and read the terms of the card before applying. You wouldn't believe how many people don't know what an APR rate is." For more information on finding the best rated cards, check out CardRatings.com. You can read reviews of cards from other students and get the lowdown on perks of various credit cards.
Campbell has three recommendations for students: The first is open communication. Campbell says students who are educated about financial matters seem to have a better overall attitude regarding credit cards. Students should find a trusted source to talk openly with about money issues. Second, students should switch from spending behaviors (such as shopping) to activities that help you achieve the same feeling of gratification or reward, such as intramurals, exercise or campus organizations.
Last, but certainly not least, enroll in a personal finance course as soon as your schedule allows. Says Campbell, "If it's not required coursework, take it as an elective. You will learn a set of life skills that will not only help you right now, but also after college and for the rest of your life."
Self-Confidence Sliding Downward! There are times in all of our lives where our self-confidence wanes!! This past week was one of those weeks for me. I questioned the work ....
What Do Mobile Auto Detailers Clean When it Rains? A mobile auto detailer and their profits are tied to the weather perhaps more than any other business. There are ways to make money even on a rainy day if you a...
The POWER Behind Network Marketing Network Marketing is the most powerful business model available today. This article will reveal to you the real POWER that makes Network Marketing what it is t...
Love Each Other and Enjoy the Ride The Seed (aka Lindsay Wincherauk) is co-author of Seed's Sketchy Relationship Theories - A Guide to the Perils of Dating (How not to become a bar regular). Whic...
Wise Man Marketing If you find advertising expensive, feel concerned that the effectiveness of your marketing campaigns are difficult to measure, then discover marketing's wolf in...
What is Passion? For a word with origins that mean to suffer, many view passion as what inspires us to reach new levels. To better understand passion may begin by defining passi...
Top 10 Items For A 21st Century Toolbox! Skilled workers of every age have prized their tools. I recently visited a Museum of Natural History and was amazed at the craftsmanship and precision of the se...
Directionals Move Properties One of the most effective and frequently overlooked methods of filling or selling a property is the use of directional arrow signs. I'm guilty of it myself, alt...
7 Ways to Stay Spiritually Balanced Spirituality is uplifting, warm and makes us feel
comfortable. It can lull us into believing that if we're on
the path we can relax and have all that we need c...
Trade In Your Diet For A Lifestyle! Dieting is a pain. I think basically everyone would agree that having to adhere to a rigid restriction of your free-flow eating preferences puts a bit of a dam...
Fit or Fat?! Just tell a fat man or woman "You look fat!" and you are a goner. No fat man or woman would like to use the word "fat". It is either "obese" or "stout" or "on t...
The Chi of New Homes: Feng Shui-ness and Destiny When my wife and I were searching for a new Las Vegas home in 2002, we wanted it to have a solid foundation based on Feng Shui principles. My wife researched th...
If Youre Not Ready - Dont Start! There are times when we feel we should take action, but feel stuck or unsure. Action does assist with moving forward, but the first question to ask is "Am I rea...
Free Traffic Course - Day 5 Online statistics shows that about 10% from online visitors make immediate purchase on the web site. Other 90% of visitors may leave your web site forever, with...
Print this page