Credit card and college students can be a lethal combination. This is no surprise, because many college student’s parents are in their own form of credit-card-Hell. When a child sees their parents whip out the plastic to pay for just about everything, why would they think anything other than that that credit card is some sort of magical form of payment? As a society we have got to learn to control our plastic-addiction, and it is of the utmost importance that we nip this problem in the bud with college students.
The minute my oldest daughter was accepted into college, the credit card applications for her began to fill the mailbox. She was a student with a part-time job making all of about $8,000 a year. How on earth did this make her an appealing credit risk to credit card companies? Somehow, it did. And naturally, she got her first credit card as soon as she could.
As soon as that little rectangular piece of plastic showed up in the mail, I sat her down and gave her a good, long lecture on how to correctly manage a credit card. It was not a bad thing for her to have a credit card. After all, a credit rating has to begin somewhere, and a well-managed credit card account can be a good place to start. BUT … a credit card can get out of hand very quickly, and this is what I wanted to drive home to her. I suggested that she use the credit card to make a single purchase – perhaps fill her car with gas. And when the bill arrived, to pay it in full. I then suggested that during the second month of credit card ownership, she make a couple of purchases – say $50 worth, and then pay it off in two months. This would begin to establish her ability to make payments. Then I told her to tuck that little sucker into her wallet, and forget that she owned it until an emergency arose.
She took my advice – for about ten seconds. And here is where I made my mistake. I explained to her that if – for instance – she charged $100 on the credit card, the bill would arrive showing that she owed a ‘minimum payment’ of $10. She would have the option of paying $10 a month until the price of the purchase was repaid, and during this time interest would accumulate. This accumulated interest could mean that she ended up paying $125 or more for the $100 item. All she heard of this was the ‘$10 a month for a $100 item’ part. Or that was all she chose to hear. During the first month, she racked that credit card up to $200 – and I took it away from her. Yes, she was an adult and had a right to carry that credit card. I don’t care. She was eighteen-years-old and headed for financial trouble in a big way. It took her four months to pay for that $200 debt plus the interest. When the debt was repaid, I brought the card back out and we tried one more time. We went over the monthly bills that she had received – particularly the part that showed how much interest she had ended up paying. And this was with her paying five times the amount of the minimum payment due.
That was four years ago. It is still her only credit card, and she still takes pretty good care of that account. She has made payments a few times when the balance has gotten a little high, but for the most part she thoroughly understands that that card does not represent ‘free money’ and that there are penalties for not paying in full.