A Column of News & Comment by Senator James L. Seward
Every fall, New York’s colleges, and universities welcome thousands of incoming freshmen to their campuses. It’s a safe bet that many of them will leave school with a high-quality education, a college degree, and lots of memories. It’s also quite possible they will drag along a ton of credit card debt.
Today, many young professionals are trying to keep their heads above water as they struggle to pay off thousands (sometimes tens of thousands) of dollars in credit card debt accumulated in college and, in the process, rehabilitate credit histories that have damaged their chances to get a car, a job, or a home.
Of course, credit cards in and of themselves are not bad things, indeed, they are a great way to establish a positive credit history necessary for bigger purchases like automobiles and real estate. There is no doubt, in our increasingly paperless society, credit cards offer freedom and independence – two qualities that appeal to those who are just starting out and are looking to establish their own identities.
According to national statistics, more than 80 percent of college students own one credit card and 56 percent of them have more than four. Further, by graduation day, students will amass an average credit card debt of $3,173. Depending on the APR and the monthly payment, this kind of debt could take years to pay off and cost plenty in interest.
A few simple tips to remember:
- Shop around for the best interest rate. Like any class in college, finding the right credit card requires a little bit of homework. Look for a fixed rate, not a low introductory rate that is temporary and won’t last. A good place to compare rates is at the New York State Department of Financial Services website (www.dfs.ny.gov) which includes a special Student Protection Unit;
- Some credit cards charge an over the limit fee, a late payment fee, a cash advance fee, and an annual fee just for being a cardholder. Read the fine print and look for a card with no or low annual fees;
- Settle on one card and pay the balance in full each month and on time; and
- Request a low credit limit – $500 to $1,000 – that is sufficient for emergencies, yet reduces the temptation to use it for big-ticket items.
A few years ago, the federal government enacted the Credit Card Accountability, Responsibility, and Disclosure Act that contains several protections aimed at protecting college students and young adults including:
- Credit card companies are banned from using free giveaways, such as pizza and tee shirts, to entice students to sign up for credit cards at on-campus tables;
- A ban on credit cards for people under the age of 21 unless they have adult co-signers or show proof that they have means to repay the debts;
- Credit card companies are required to get written permission from a parent or guardian before raising credit limits; and
- Colleges, universities, and alumni associations have to disclose the nature of contracts they sign with credit card marketers allowing access to student and alumni contact information.
Another viable option for students is a debit card. Like credit cards, debit cards are accepted nearly everywhere. Since funds for purchases are directly from the bank account of the cardholder, it helps develop fiscal accountability for spending and budgeting money.
Parents may also want to consider adding a card, with an established limit, in their child’s name on their account. Monthly statements help parents keep track of any purchases made on that card and provide a valuable tool in teaching children about how to use credit responsibly.
A small piece of plastic can have a big impact – positively or negatively – on one’s credit history. Being smart about credit cards may be one of the most important lessons college students learn in their time on campus.