Are College Students Misusing Credit Cards?

by Mack Bartlett

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In the last several years credit card companies have pursued college students a lot more aggressively. I hate to say it, but the marketing strategy of the big tobacco companies comes to mind – Hook ‘em while they’re young. I’m not saying big credit providers are as predatory (and at least using their product won’t kill you – physically anyway) as the tobacco companies. I’m saying they recognize that if they can snag college kids while their young they’re more likely to retain that customer for a long time – maybe life.

What’s the affect on the financial situation of our young men and women on the nations college campuses? It doesn’t look great.

Here are four statistics I can point out:

• In 2004, 83% of students with at least one credit card in their name had a credit card with a balance in excess of $2300.
• 32% of students had four or more credit cards in 2004.
• As of 2004, the average graduate student had six credit cards and one in seven owes more than $15,000.
• In 2005, 65% of teens failed a financial literacy test according to the Jump$tart Coalition.

Consider them individually, then consider them as a whole. What you see is a lot of debt carried by the majority of students in a country where most kids don’t really understand how to manage their finances. Scary? A little. College students do appear to be misusing credit cards.

Credit cards may not cause lung cancer, but it wouldn’t be too much of a stretch to call them a financial cancer – if they’re used unwisely and mismanaged. As I’ve said before, I love credit cards. I use them to my financial advantage every day. Our students need to be equipped with the knowledge so they don’t misuse their credit cards.

Here are the three most important methods for avoiding exorbitant credit card debt as a student:

1. Keep your limits low – for now. When I got my first credit card it had a limit of $1500 and I promptly maxed it out. Stupid right? Yeah, it was. I wish I’d had a limit of $500 so when I made the mistake it wouldn’t have taken me as long to pay for it. Once you’ve learned discipline with your cards, get higher limits. I have several large limit cards now and they’ve served me well. Just make sure you know how to handle them.
2. Make it a habit to pay the balance every month. You hear this one a lot, but you never hear that the biggest reason to do it is it becomes a habit. Once you’ve done this for a couple years it will come naturally to you to pay the card every month, avoiding late fees and high interest charges.
3. Don’t carry more than 2 cards. The more you get, the harder it is to keep track of them. I really wouldn’t recommend opening department store credit cards. They have ridiculous interest rates and they don’t help build your credit much. Use a couple of cards a lot and pay them off, and you’ll get the credit building benefits you’re looking for.