Your children will be bombarded with hundreds of college credit card offers while they’re at college — current students report receiving an average of almost five credit card solicitations a month — and as sensible as you think your kids might be, odds are they won’t be able to resist.
Lured by the appeal of seemingly easy money and giveaways like coupons for pizza and free music downloads, nearly two out of every three undergraduates report having at least one credit card, with an average balance between $1,300 for first-year students and $2,600 for seniors, according to a study released in March by the U.S. Public Interest Research Group. One in four students report having paid at least one late fee, and 15 percent report having paid at least one over-the-limit fee. Over 6 percent have had at least one card cancelled for non-payment.
But the dangers of student credit cards run deeper than just debt, delinquency, and fees: Students with high credit card debt run a higher risk of having low GPAs and dropping out of school — in fact, an estimated 7 to 10 percent of college students will drop out because of credit problems, says Robert Manning, author of Credit Card Nation.
So what can you do to help make sure your kids don’t end up the victims of their own rampant and unfettered credit card use?
What You’re Up Against
- Your kids see credit cards as free money, easy money, or more money — not debt.
- They view having and using a credit card as a sign of independence and adulthood.
- They’re drawn to the idea that they can buy what they want, when they want it, even when they don’t have the cash to cover it.
- They’re sure they’ll have plenty of time and resources to pay their cards off later, and they underestimate the impact of interest and fees — they can skate by on minimum payments right now, so why worry?
- They’re new to credit and may not really understand the full long-term implications of a spotty credit record — if they go over their limit or miss a payment, no big deal, they’ll just make it up next month.
- Young adults tend to have less impulse control — your kids may see their chance to live large away from home and take it, overextending themselves beyond what they can afford.
How to Deal: The 5 Canons of College Credit Cards
The reality is, you may not be able to keep your kids from getting a credit card; once they’re 18, they can qualify for a credit card on their own.
What you can do, though, is try to pass on some hard-earned adult wisdom and a few reality checks. Here are five wise and basic but crucial rules for your kids to charge by that could help keep them out of credit card trouble.
Rule 1: Think debit, not credit.
Encourage your kids to think of their credit cards as for-emergency-use-only. Suggest they set up a bank account tied to a debit card instead to use for their college expenses — and turning down overdraft protection, which makes it too easy for them to spend more than what they have and comes with expensive transaction fees, to boot. With a debit card, your kids can have the same convenience of plastic, but once their money runs out, it’s out, and they’ll have no choice but to stop spending.
Rule 2: Set up a budget.
Help your kids set up a budget for each semester, so that they don’t end up spending more than they have. Urge them to track their expenses and balance their budget each month in order to establish valuable habits that’ll come in handy even after college.
Rule 3: Know what you’re getting into.
Discuss consequences. Remind your kids that a credit card is a loan, not extra spending money. Make sure they understand that even just late payments could affect their credit score to the point where they might not be able to rent an apartment when they go off-campus, qualify for any private student loans they might need while they’re in school, or even get hired once they leave college.
Rule 4: Build your credit slowly.
Acknowledge that a credit card, well-handled, can be a good way of building credit, but warn your kids that too many credit cards, even if they’re not being used, can bring a credit score down. Advise your kids to select just one low-interest credit card with a small available balance that they can begin to use — in small doses only — to build their credit.
Rule 5: Use plastic responsibly.
Stress to your kids that they should be paying off their balance in full and on time each month. Help them see that it may not matter that they find a great deal on sale if they have to charge it, since each month that they don’t pay off a full charge and rack up interest, they’re paying more for their purchase than what was rung up at the register. Emphasize that they should only charge what they have the cash to cover; and if a balance remains unpaid in any month, they need to stop charging until their debt is paid.