Credit cards: A dangerous convenience

“Mentally, it took a big toll on me, “she says. “I’m totally different now.” With a bankruptcy on her credit report, she can’t trade in her car or get a cell phone without a huge deposit.

When asked what advice she would give students headed to college, Veronica says, “Just be careful.”

“So many of these kids don’t know how they got into trouble, and they don’t know how to get out of it,” says director James Scurlock. “They are too scared and too ashamed and too humiliated to ask for help because they think they can handle it.”

Student cards are no bargains
Many banks have credit cards specifically designed for college students. They often come with no annual fee, offer rebates or rewards and have an introductory interest rate of zero percent. But once that teaser rate ends — usually after 6 months — the interest will jump to 17 or 18 percent. That’s a lot higher than the average credit card, which carries a rate of 10 to 15 percent depending on type, according to Bankrate.com.

According to a recently released study from the American Council on Education, 25 percent of students with a credit card use it to pay their tuition.  These students, the study found, are “more likely than other cardholders to carry a balance from month to month.”

“If they’re not carrying a balance, it’s just a convenience,” says Jacqueline King, director of the ACE Center for Policy Analysis. “If they’re floating their tuition payment, that is an issue,  “because there are much less expensive forms of credit.  Federal student loans are 6.8 percent vs. the 18 percent that is common on most student credit cards.

Parents need to help
Many young adults don’t realize they can accumulate a huge debt even when they make the minimum payment each month. “One of the things we’re seeing is young people who never intended to abuse credit, but the debt creeps up on them,” says Laura Levine, executive director of the JumpStart Coalition for Personal Financial Literacy. That’s why she advises parents to teach their kids how to use credit cards and understand the ramifications of accumulating debt.

Financial experts say parents also need to talk to their kids about making a budget before they head off to school. “Make your expectations very clear,” advises King, “that Mom and Dad are not going to just step in. Tell your child, ‘We’re going to give you this much money every month or every semester, and that’s it.’”

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