Credit Card Debt For College Students

Most college students know the temptation. You are walking through campus and are assaulted by an arsenal of credit card offers. If you sign up for this one-time exclusive offer, you will receive a special bonus gift. Whether it is a t-shirt, a baseball hat or even candy, college students find it hard to resist. And after all, it’s just a credit card. Everyone has one. According to a 2004 survey conducted by the student loan agency Nellie Mae, 76% undergraduates have their own credit card. The estimated average debt racked up on one of these cards is $2,169!


How Credit Cards Work

They sound too good to be true. You find a stereo at the mall that you just can’t live without. You don’t have the cash on you, but that’s ok because you can just charge it. When the bill comes at the end of the month, your cash flow might still be a little low. Here comes the credit card company to your rescue. All you have to pay is the minimum payment, a mere 2% of the balance, and you are in the clear. Be careful, though. By just paying the minimum payment, you are playing right into the hands of the credit card company. The credit card company charges you interest on your purchase, and this interest increases with time.


An Example

  • You spend $500 on a brand new stereo and pay with a credit card.
  • The credit card company charges 20% interest.
  • If you pay the minimum payment of 2%, it will take you 9 years to pay off the stereo, and you will end up paying $1084 to the credit card company for your $500 stereo.


How to Avoid Credit Card Debt

  • Avoid Late Fees: Make sure to make your credit card payments on time. Late fees can really add up. Plus, every time you are late with a payment, the credit card company reports it to a record keeping company who is responsible for compiling your credit report. In a few years, a poor credit report can make it harder for you to buy a car or rent an apartment.
  • Don’t Just Pay the Minimum: Pay your entire bill each month. If you can’t pay it all, pay as much as you can. You will end up paying less interest, and your purchases will be paid off much sooner.
  • Find a Low-Rate Card: Introductory cards may charge you as little as three percent interest. While it might only last for a few months, you can pay off your credit card balance at 3% compared to 20%. When the low rate period ends, switch to another low rate card. Check out to find the lowest rates. You will be able to see both introductory and non-introductory rates.
  • Be Realistic: If you can’t afford to buy something, don’t buy it. While credit cards can be very useful, they are not magic. If you are careful with your budget, then you can avoid falling into the credit card debt trap.
For more information, see WISER’s Fact Sheet on Credit Card Basics.

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