Credit Card Debt Management

With an unstable job market and increasing college costs, it’s a hard time to be a college student. It’s no wonder credit card companies’ aggressive on-campus marketing campaigns appear so enticing to students. A U.S. PIRG survey of 1,500 students at 40 colleges in 14 states revealed the following:

-2/3 of college students have at least one credit card.

-55% use their credit card for daily expenses.

-Average balance for students with no parental help = $1,301

-Average balance for senior students = $2,623

Granted, student credit card debt is nothing compared to student loan debt. However, the credit card debt certainly won’t help pay off the student loan debt or establish financial stability after college. Furthermore, experts say accepting credit that is essentially unaffordable in the college years marks the beginning of a highly damaging pattern of behavior that contributed to the recent housing crisis.

Silicon Valley’s Mercury News cited 19-year-old Holly Jackson as saying she feels overwhelmed by her credit card bills and may need to pick up a second job.

“I’m learning my lesson,” she said. “After I pay these off, I don’t plan on getting more. They’re awful.”

Undeniably, credit card companies themselves are not without fault. Their aggressive and misleading on-campus marketing campaigns have been legendary. Sen. Robert Menendez (D-NJ) recently proposed a bill that would require consumers under age 21 to “opt in” before they could be the target of credit card solicitations. Additionally, universities are stepping in to provide personal finance education. These are certainly steps in the right direction.

The use of credit cards has gone from 67% in 1998 to 75% presently. Students are falling victim to marketing schemes offering free t-shirts, free food, and many other gimmicks to collect credit card applications or even just permission to mail out credit card apps at a later date. An article by Baruch College in New York targets education as the primary reason for rising student credit card debt.

Today, far more college students are racking up debt than ever before. The primary reason is the education system, which in many cases does not provide sufficient or any resources for students to educate themselves on personal financial management.

It does seem that, aside from predatory lenders themselves, parents and educators are most at fault for the student debt crisis. And it is a crisis. One that has some students dropping out of college or committing suicide to escape their burdens of debt. It is shameful.

Yours truly was once a college freshman without a clue on anything financial, beyond how to write a check - and I was homeschooled! For skeptics out there, the homeschool education I received was very comprehensive. But for some reason, my parents omitted financial education altogether … and education on the Greek gods, for which I later chastised my mother while prepping for the Humanities mid-term exam sophomore year. But I digress.

My parents were not unique, but were actually the norm, unfortunately. Like many other naive college students, I ran off to college and got a credit card freshman year because it was being pitched by a popular kid, came with a free t-shirt and all my friends were doing it. What about credit card marketing practices, debt consolidation, interest rates, Universal Default Policy, credit limits, credit reports, FICO scores, the importance of paying all bills on time, and so on?

Is it possible that there is a lack of adequate financial education in high school because parents and teachers consider it irrelevant and want to discourage credit card usage at such a young age? There are some parents who allow their children some first-hand experience with the credit card game while still in high school, with limits and abundant supervision. This is necessary because there does seem to be a lack of education in the school system and ultimately, the buck stops with parents. If parents don’t educate their children, someone else will after they leave the nest - and it may not be the messages you want them to hear.

Citibank’s mtvU is getting a ton of attention these days, thanks in large part to a CNN report naming it one of the “best student credit cards.” Why all the love from critics? This card knows its target audience all too well. That intuitiveness is something MTV has long bragged about, and now they’re packing their knowledge of the coveted 18-26 demographic into small, power-packed plastic packages.

The card offers five Thank You points for every dollar spent at restaurants, bookstores, record stores, video rental stores and movie theaters. It also give students one point for each dollar spent elsewhere. It offers five percent back on all Amazon.com purchases and a whopping number of points for staying under limit, paying the bill on time and bringing in good grades each semester.

Although it’s refreshing to see a credit card with such an apparent level of social responsibility, mtvU has also been in the news lately for some shady recruiting tactics involving free food. So it’s apparent that they are preying pretty heavily on the college crowd, but that makes sense in light of the fact that college students are the only ones allowed to have this card. Besides, many people consider credit cards just as integral to college life as microwaveable food nowadays. So for those who subscribe to that belief, mtvU is a pretty unbelievable bet. However, before signing up, consumers may want to consider that getting approved for this card can be a fairly rigorous process.

In fact, some say Citibank has applied new verification rules to all its student services. The guidelines require a photocopy of a student ID and a current enrollment sticker, or a copy of the current semester’s paid tuition bill with the student’s social security number on it, printed out directly from the school web site with the URL listed. Also required: proof that the student has a landline phone with the bill in their name. If the bill is not in their name, then a copy of a bank statement from within the last 90 days will suffice.

For those students willing and able to jump through Citibank’s many hoops, mtvU looks to be a very good card indeed. But don’t overlook the interest rate - 0% in the first six months and thereafter a variable rate of more than 17% on purchases and balance transfers, and 22% on cash advances.

From a no-frills, low-interest perspective, students may be better off to use the other two credit cards mentioned in the CNN Money article. That is the Ohio Savings Bank Student Platinum Plus Visa or MasterCard at 13.99% APR, or the Sovereign Bank Student Visa or MasterCard at only 9.9% fixed. The catch on that last one is that the 9.9% Platinum Plus account with Sovereign Bank is granted only to those deemed to have “credit worthiness,” according to Sovereign Bank’s terms and conditions.

Those without “credit worthiness,” like entry-level college students who often don’t have any credit built up yet, will be bumped up to a higher interest credit card with Sovereign Bank. At any rate, responsible use of a low-interest, low limit credit card is the name of the game for college students, and responsible use does not mean swiping the card at every video store or restaurant you can find.