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                                                                                     AS SEEN IN USA TODAY AUGUST 12, 2003

Self-control key to managing
credit card debt in college
By Christine Dugas
USA TODAY                                                         Bielagus managed to pay off his debt by the time he
                                                                graduated. He cut back on spending, worked three jobs,
   College offers a unique opportunity to experiment. Away      held a yard sale and sold some investments. But many
from your parents' watchful eyes, you can shave your head,      students are unable to retire their credit card balances
join a rock-climbing expedition or get a tattoo. But if you     before they enter the working world.
use credit cards to finance your adventures, you could end
up with debts that will linger longer than the Harley-            About 31% of college seniors have balances of $3,000 to
Davidson logo adorning your backside.                           $7,000, and 9% have more than $7,000 in credit card debts,
                                                                according to student lender Nellie Mae (see box).
   Piling up debt during your college years is alarmingly
easy. Credit card issuers ply college students with offers of     Good credit
free T-shirts, Internet access and other goodies, just for
opening an account. Once you have the cards in your wallet,       That doesn't mean you should shun credit cards entirely.
the temptation to use them is great, says Peter Bielagus, a     Potential lenders look at how you've managed credit when
Boston financial adviser and author of Getting Loaded: A        determining whether to lend you money.
Complete Personal Finance Guide for Students and Young
Professionals.                                                     If you graduate without any credit history, you may have
                                                                trouble qualifying for a car loan or mortgage, says Jan Davis,
  "There's a tremendous tendency to enjoy that time of          president of, which provides consumer
your life," he says. "I certainly did."                         credit management services.

  Bielagus, 26, ran up $5,000 in debt on eight credit cards        Temperance is key. Most students need no more than two
during his early years at the University of Miami. He went      credit cards, Davis says. Earmark one for routine expenses
out to eat five nights a week, even though his campus job       and pay off the balance every month. Use the other for
paid just $6 an hour. Vacations and weekend trips pumped        emergencies, such as a car breakdown or plane ticket home
up the balance.                                                 for a family funeral.

                                 Reprinted with permission. All rights reser ved.

    Ideally, your emergency credit card      on purchases, Davis says. But some
 should have a low interest rate,            cards provide a smaller window, and a        More college, more credit
 b e cause you may have to car r y a         few have no grace period at all. As a        Credit card usage increases
 balanc e. Car r ying a balanc e c an        result , you c ould end up owing             through college grade levels:
 actually enhance your credit rating         interest even if you pay off your
 b ecause it shows lenders you can           balance every month.                         Average number of cards
 manage debt responsibly, Davis says.                                                     Freshman: 2.5
 Just make sure you make at least the           u Keep your credit limit low. A low       Sophomore: 3.67
 minimum payment on time ever y              credit limit will help you resist the        Junior: 4.5
 month.                                      urge to splurge. But maintaining a low       Senior: 6.13
                                             credit limit requires vigilance, Bielagus
   Other credit management tips for          says. Many card issuers will start you       Pctg. with 4 or more cards
 college students:                           off with a low credit limit, then raise it   Freshman: 26%
                                             after a few months, he says.                 Sophomore: 44%
    u Resist the temptation to apply for        If you re ceive a congratulator y         Junior: 50%
 a lot of credit cards just to get the       letter informing you your credit limit       Senior: 66%
 freebies. Having a lot of credit cards      has been increased, call the credit
 can hurt your credit record, even if        card issuer and decline the offer, he        Average credit card debt
 you never use them, Davis says.             says. If the issuer won't do it, close the   Freshman: $1,533
                                             account, he says.                            Sophomore: $1,825
    u L enders, landlords and other                                                       Junior: $2,705
 businesses are leer y of individuals           u After you've used credit cards for      Senior: $3,262
 who have a lot of available credit and      a few months, order your cre dit
 a limited income, Davis says. They          report. You can get a credit report and      Pctg. with $3,000-$7,000 balances
 don't want to be left holding the bag if    credit score from one of the major           Freshman: 8%
 you use those cards to run up a lot of      cre dit-rep or ting    agencies       —      Sophomore: 18%
 debts you can't afford to repay.            TransUnion, Equifax or Experian -- for       Junior: 24%
                                             about $13. Review your credit record         Senior: 31%
   u Watch out for fees. The cool T-         c arefully for mistakes, such as
 shirt you get for signing up isn't really   purchases made by someone with a             Pctg. with balances exceeding
 free if the credit card carries a fat       name similar to yours, Davis says.           $7,000
 annual fee. Some credit cards that                                                       Freshman: 4%
 offer free air miles or rebates also           Checking your credit report will          Sophomore: 4%
 charge annual fees, so you need to          help you avoid unpleasant surprises          Junior: 7%
 weigh the value of the miles vs. the        later. Landlords, auto lenders and even      Senior: 9%
 cost of the card. Research no-fee or        employers may look at your credit
 low-fee cards at           score.                                       Source: Nellie Mae

   u Check the grace period when               Once you've established credit, you
 comparing credit card deals. Most           should check your score once a year,
 credit cards give you a 25-day grace        Bielagus says.
 period before interest starts accruing

                                   Reprinted with permission. All rights reser ved.
Self-control key to managing                                         Activity at a glance:
credit card debt in college                                          h Grade level: 9-12

Objectives:                                                          h Subjects: economics,
                                                                       math, personal finance,
Students will:                                                         social studies

h read the article, “Self-control key to managing credit card debt   h Estimated time for this
in college” for information on credit cards and credit card debt.      activity: 45-50 minutes

h complete a graphic organizer that compares their monthly           Materials:
income to their monthly expenses and other debt.
                                                                     h Article: "Self-control key to
                                                                       managing credit card debt in
Concepts:                                                              college"

                                                                     h Copy of the discussion ques-
h Debt                           h Resources                           tions and activity

h Income                         h Responsibility                    h Graphic          organizer:
                                                                       “Evaluating your expenses,
h Debt-to-income ratio           h Problem solving                     debt and income”

                                                                     h Pencil, scratch paper

h Give each student a copy of the article.

h Divide students into small groups, and have them answer the
discussion questions aloud.

h Then, have students complete the graphic organizer
“Evaluating your expenses, debt and income” on their own.

Self-control key to managing                                              Additional resources:
credit card debt while in college                                         h offers a hand-
                                                                            book on credit and debt enti-
Discussion:                                                                 tled “Learn Now or Pay Later.”
                                                                            Visit or
                                                                            to order a copy, call
What are the advantages and disadvantages of using credit cards to
finance purchases? Why is it easy for college students to pile up
debt while in school? What methods do credit card companies
employ to persuade students to open accounts? Why is it impor-            Activity extensions:
tant to establish some kind of credit history while in college? What
is the key to effectively managing credit cards and debt? When is         h Compare and contrast the
it wise to pay off credit card balances in full? How does carrying a        interest rates, annual fees
balance help a person? Why is it unwise to have a lot of credit             and other conditions of two
cards, even if you never use them? What information should you              different credit card applica-
research (or read about in a credit card offer) prior to securing           tions. Decide which offer is
each particular card? When and why should you review your                   better for a student, and
credit report?                                                              explain your reasoning.

                                                                          h Using a graphic organizer,
Activity:                                                                   compare and contrast the sim-
                                                                            ilarities   and    differences
Your credit report is one aspect of your financial resume. Potential        between debit and credit
lenders review it to examine your borrowing habits and your                 cards. Which type of card
repayment history. Lenders all use these reports to analyze an              helps a person establish a
individual’s debt-to-income ratio. In short, financial institutions use     credit history? Which is likely
credit reports to evaluate a person’s creditworthiness.                     to keep a person from becom-
                                                                            ing overwhelmed by debt?
Use the attached graphic organizer to assess your credit history            When is it wiser to make pur-
and ability to manage your debt responsibly.                                chases using a debit card?
                                                                            When is it in a person’s best
                                                                            interest to use a credit card?

                     Evaluating your expenses, debt and income
Your debt-to-income ratio (DTI) is a key indicator of your true financial picture. It is the lending industry's measure
of fiscal health. Your debt-to-income ratio is calculated by dividing monthly minimum debt payments (excluding
mortgage/rent, utilities, food, entertainment, etc.) by monthly gross income. For example, someone with a gross
monthly income of $3,000 who is making minimum payments of $600 on debt (loans and credit cards) has a debt-
to-income ratio of 20 percent ($600 / $3000 = .20).*                                              *Source:

With your parents, use the space below to help you calculate your family’s debt-to-income ratio as well as your
monthly budget. When all of your bills are paid (rent, utilities, etc.), how much is left over to cover mandatory loan
payments? After all of your financial obligations are met, how much “pocket cash” do you have to spend?

Monthly expenses (bills,           Monthly payment              Monthly loans (loans or          Monthly payment
not including loans or                                          other forms of credit)
other forms of credit)

 Housing (rent/mortgage)           $____________________       Credit card 1                     $____________________

 Utilities (gas, electricity)      $____________________       Credit card 2                    $____________________

 Phone/cell phone                  $____________________       Credit card 3                     $____________________

                                                               Loan 1 (for example, a car
 Food                              $____________________                                         $____________________

 Miscellaneous                     $____________________       Loan 2                           $____________________

 Other                              $____________________      Loan 3                            $____________________

 Total                                                         Total                             $____________________

 Monthly income                     Amount                      Total monthly income            $____________________

                                                                minus total monthly
 Work                               $____________________                                        — $_________________
                                                                debt and expenses

 Investments                       $____________________        equals amount left over         = $_________________
                                                                each month

 Other sources                     $____________________        total monthly debt divided      $_________ / $_________
                                                                by total monthy income

 Total                              $____________________       equals debt-to-income ratio      = $_________________

After completing this exercise, do you have a better understanding and appreciation of what it takes to manage a household?


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