Paying with plastic: a recipe for disaster
Photo credit: Andres Rueda
It’s tiny, shiny and lets me spend money without handing over a single, precious paper bill. It acts like my best friend, but could become my worst enemy. And now, I have two of them.
Credit cards are commonly used by college students because they’re convenient. I suspect that self-delusion adds to their appeal as well; it’s easy to pretend you can buy anything you need - or think you need - when you can delay the financial consequence. Also, it’s a lot easier to deplete your checking account when you aren’t really paying attention to how much is coming out of it, especially if you’re like me and you insist on paying your card off in full every month - wise, perhaps, but costly.
I rack up about $400 a month on my two cards together, which I can stay ahead of - for now. Though, with $750 of available credit, it could be much worse.
What’s even more disturbing is the amount of credit I could have. I get several appealing offers by mail each month, both at my home address and my residence hall here at San Diego State.
The offers pitch like carnival barkers: “No annual fee!” “Credit limits of up to $2,000!” “Multiple card designs to choose from!” “Annual percentage rate of just 19.8 percent!”
And I can pick my preference - Visa, Mastercard and many more.
While I doubt I’d be approved for more than $500 per account, it would be easier to get multiple cards, especially because I haven’t missed a payment on my others. I could easily have a thousand, if not thousands of potential dollars at my command - and that would be far too tempting.
Many other students have been there.
You see the “Free T-shirt!” sign, fill out a form and a few weeks later the card arrives. You plan to use it only for emergencies and for little things. You make minimum payments for a while, when suddenly you aren’t approved for a purchase. If you do a little research into your purchases, the billing statement shows that the CD you bought for just $12.99 ended up costing you $26 after four months of non-payment. And this was one of your smaller purchases.
The most suspicious thing about this situation isn’t that credit card companies stalk new college students, but that the prime hunting ground is on campus. Nellie Mae, the nation’s largest student-loan lender, reports that many companies set up tables in the common areas of college campuses, sometimes offering free trinkets to encourage them to sign up for a card.
According to www.nelliemae.com, a study conducted by the U.S. Public Interest Research group showed that students who acquired cards at such tables had higher unpaid balances than those who acquired them through other means. The report stated that the average undergraduate student has more than $2,000 in credit card debt alone. Many people aren’t aware that every application for credit can lower your credit score - even if you’re approved.
Moreover, underclassmen sometimes forget that if they have student loans due upon graduating, the additional burden of credit card debt can be overwhelming.
Universities do little to alleviate the pressure. It’s recklessly irresponsible to allow companies and advertisements to prey on students who are here to be educated, especially since plunging into debt may mean the student loan payments stop coming. Worse, it reduces students to targets rather than people.
The least these institutions could do is implement mandatory financial education classes, because most students, including myself, have no education in personal finances. Then, perhaps, such decisions would be made consciously, with knowledge and caution.
At least then students wouldn’t have to ask mom and dad to bail them out of financial prison.
Read the original column online here.
