Tips to help college students stay away from debt

Credit card companies are persistently going after the college market. They not only use mailing lists, displays around campuses, but also use gimmicks to entice students to sign up for a low average percentage rate, no annual fee, free T-shirts or water bottles.

As attractive as it may sound, there are many potential dangers that students are not aware of.

Students are quick to sign up not knowing that there is a “finance charge.” This charge is for the convenience of borrowing,transaction fees and often other charges as well. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time, or when you go over your credit limit.

Some charge a flat monthly fee whether you use the card or not. Once you’ve signed up, that low introductory interest rate may increase to a much higher rate, even as high as 20%.

Students who are only able to make the minimum payment each month, covering only interest charges, may never be able to get out of debt. Some students feel building a credit history is an important reason for obtaining general charge cards, as well as cards for gasoline and department stores, while others just like the fact that they can buy now and pay later.

Whatever the reason may be, students should familiarize themselves with the positives and negatives of having a credit card before obtaining one. Otherwise, students can find themselves absorbed in debt halfway through college.

If overcharging is becoming more and more like an addiction, cut up your credit cards, then call the credit card companies and tell them to close your accounts. If you choose to keep one card, use it for emergencies only.

• Don’t accumulate debt you can’t afford to pay by the end of the month. You’ll be paying double-digit interest on the unpaid balance, something smart (and prosperous) graduates avoid. 

• Make a conservative monthly budget and stick to it. If you are tempted to purchase something that wasn’t budgeted, decide what budgeted items will be cut to pay for it, or start saving to buy it later. Don’t buy unbudgeted items with a credit card.

 

• If you do get into serious debt, don’t panic. Chop up those credit cards, consult with your parents on a plan to work your way clear and chalk up the experience to “financial education.”