Credit card debt a problem for college students
Alongside rising tuition costs and students loans, graduating college students find themselves paying off excess debt owed on credit cards. There is strong emphasis on financial planning and budgeting coming from parents, college financial-aid advisors, and politicians, towards college students about their use of credit cards. However, according to youngmoney.com, statistics show that students will depart college with an average of $2,700 in credit card debt. “Right now, I am already up $600 in credit card debt,” said Tony Moose, a 19-year-old student majoring in Landscape Architecture at South Campus. In response to the national dilemma, Nellie Mae, a Sallie Mae Student Loan Company, released a study that noted several trends among college students that have contributed to the growing debt average. Firstly, Nellie Mae reported that 76 percent of undergraduates began the school year holding one or more credit cards. Undergrads reported their freshman year as the most popular time to obtain credit cards. Ignorance on how credit cards operate or how to manage finances add to the underlying problem, according to Nellie Mae. When signing up for credit cards, it is important that students recognize the danger of signing up for too many cards. With too many credit cards, it is easy for spending habits to run out of control. “I know someone who bought everything from a huge screen television to a dog with their credit cards. They are [now] working overtime to pay off their credit card debt on top of all of their other bills,” said Hector Pagan, a 21-year-old finance major. For Derrick Stokes, a 22-year-old finance major, direct mail credit applications are very tempting. “I wish credit card companies would stop sending out credit cards,” said Stokes. Nellie Mae reported credit applications via direct mail as the primary method by which students chose a credit card vendor. However, according to Nellie Mae, with numerous credit card applications with incentives such as a limit of $1,000 or the ability to pay a low percentage of the monthly amount due, it is no surprise why students fall vulnerable to the credit vendors. Unfortunately, many students are forced to learn the hard way when they only pay off the minimum of their monthly statement or max out their credit limit. Statistics also show that only 20 percent of students pay off all credit cards per month, with 44 percent paying more
than the minimum, and 11 percent paying less than the minimum. Although these solutions sound tempting, the final dollar count that the student ends up paying back to the credit card company is often two or three times more than the total number of purchases with the credit cards. According to Nellie Mae, 18 percent of college students report receiving their credit card as a result of signing up for an incentive on campus, such as a free T-shirt or teddy bear. Recognizing this problem, campaigns such as truthaboutcredit.org describe the situation as “they [credit card vendors] plaster the campus with fliers and solicitations, and they rely on trinkets and teasers to convince students to apply, hawking free gifts like t-shirts and food. But they don’t inform students of their abusive practices. Not only do the companies charge extraordinary interest rates - penalty rates from major firms are now 35-40% APR - and impose significant penalty fees, but cardholders have few if any legal rights.” When proposed with the idea of solutions to the current problem, students said an easy alternative is to use a debit card. As well as also being careful to not sign up for too many credit cards, paying off more than the minimum required is important. Clark Howard, who has a financial advice show on WOKV, also gives three tips for paying off several thousand dollars in debt: “[First] if you have several cards, your first goal is to pay off the card with the highest interest rate. [Second] Pay more money toward that credit card and slightly less toward the other cards, and eventually you can rip it up. Then you move on to the next card, and so on. [Third] Mark your calendar every 14 days and write that check or send your online payments that day. Making a payment every 14 days equals one extra month’s payment you’ve made at the end of the year. Work these payments around your statement cycle to avoid paying late fees,” according to clarkhoward.com “We do our best to assist the problem by providing various options to the customer. If we do promote credit cards, it is during a promotional season when we offer credit cards with a 5.9% interest rate,” said Navy Federal Credit Union. Often, Banks and Credit Unions are targeted for contributing to the credit problem; however, such establishments are actually aiding students in financial and budgeting education.
Story by Madison Marks Photo illustration by Jason Burgos