For college students, the new year doesn’t always mean a fresh start. January and February can become a stressful time for students on a limited budget as they struggle to balance holiday credit card bills in addition to regular expenses.
Jean Bauer, a professor in the University’s Department of Family Social Science and the Minnesota Extension Service said she seeks to educate families and students about sound financial planning.
Bauer said she recognizes the strains credit cards can place on families following the holiday season and has often heard co-workers’ tales of the tension that debt can create between a student and his or her parents. She said that during the months of January and February, dealing with holiday bills can be a large part of monthly budgeting.
Her advice for students with a credit card is simple: Stop and think.
“Remember, you are buying your future,” Bauer said. “It’s easy to use plastic, but when you are not only subtracting from today’s income, but tomorrow’s as well, ask yourself, do I need this? Does it have to be now? Can it be replaced with a less expensive alternative? Most importantly, is it an investment?”
Bauer said she sees schoolbooks as an investment, but new jeans are not.
College students, a lucrative market for credit card companies, get more than candy bars, free movies and air miles when they sign on to a credit card. Along with financial independence, students gain responsibilities, interest rates, annual fees and the possibility of large debts that can have profound effects on their family relationships, college careers and job searches.
“Ultimately, handling a credit card is a learning process. Just don’t let it be one that will cost you your future,” Bauer said.
Students need to set limits and a good way to do so is to create a monthly budget, she said.
Bauer recommended that students know their monthly income and expenses, and remember the costs outside of their usual bills. These “non-monthly expenditures,” things like holidays and birthdays, are where trouble arises. Planning for the unexpected will create sound financial habits that will give a solid credit history and a debt-free graduation.
“Only buy what you can afford, not what you hope to afford,” said Ruth Susswein, executive director of Bankcard Holders of America, a national nonprofit consumer education group. “The largest danger for credit card holders is misuse and overuse.”
For Jen, a University sophomore, reducing her spending meant reducing the number of cards she had. She now has only one.
“I cut the other one up. I was charging too much. It’s so easy to just say, ‘I’ll pay it later,'” she said.
This holiday her spending was limited, and her bills this month aren’t out of her control.
“I didn’t spend that much. I kept it in the back of my head, ‘I don’t have that much money to begin with,'” Jen said.
There are a few other bad credit habits to watch out for, Susswein said. Continuing to spend and add to old debt, and paying just the minimum balance on a bill are roadblocks to becoming debt-free.
Credit card companies make an estimated $700 in interest per cardholder every year. To limit these fees, Susswein suggested shopping around for low interest rates.
“Think of a credit card as a loan with an 18 percent interest rate. Don’t let interest charges gather with the dust as your bills sit on your dresser.”
Susswein’s education group gives all their members the same advice: Be a smart consumer. Reading card information and asking questions is a good way to not get burned.
Paul Richard is the director of education at the National Center for Financial Education. Also a nonprofit educational organization, it offers various services, such as an online bookstore. The group also gives out a “credit card condom” — a one-size-fits-all plastic cover for your credit cards that carries a warning to spend safely.
His advice for college students echoes Susswein’s: Know your cash flow, use credit cards for essential purchases only and stay away from impulsive buys.
But the cost of debt is more than a financial one. Dr. Roger Witherspoon, vice president for Student Development at John Jay College in New York, said he believed that aggressive marketing techniques and high credit card debts were harming his student population.
He said he noticed students were taking time off from school to work and pay off their credit card debts and were being turned down for job interviews because of background checks that revealed shaky credit histories.
With the support of the student government and the college’s president, in 1991 the college banned all credit card advertisements from campus.
Witherspoon said he believes that colleges have a responsibility to educate students about handling credit cards. “Between loans and credit card debt, we are mortgaging away the future of our children.”
Once students receive their first card, it is easier to get another. Witherspoon said he knew of one student having as many as 19. The idea behind the aggressive-marketing ban was to make it difficult to get the first card. It’s the competition to be the first card that has credit card companies scrambling after college students.
When the industry matured to the point where there were few other new customers, they turned to college students as a fresh source. Says Robert McKinley, president of RAM Research. Credit card companies have been increasingly competitive since 1992. A key reason for this, he said, is that college students are loyal to their first card.
Of all college students, 75 percent continue to use their first credit card 15 years after getting it, said Sean Healy, director of media relations at MasterCard International.
Unfortunately, McKinley said, in their quest to capture the college-age market, companies have lowered their standards, even going after high school students.
The Minneapolis branch of Consumer Credit Counselors hopes to reach college-age students as well. A national, nonprofit educational organization, they offer assistance with debt counseling, consolidation, and money management.
Tentatively scheduled to be on campus in February and March and during Grad Fest, counselor Suzy Wheeler hopes to keep pace with the credit card companies by giving students the information and resources they need to manage their money.