For many new college students, assuming financial responsibility is part of the college experience. However, this responsibility can be challenging since many college students often are inundated with credit card offers.
Misuse of credit cards can lead to serious consequences, and it is important for students and parents to carefully consider the decision to acquire a credit card.
Credit cards are convenient and can be helpful in emergencies. They also can help a young adult establish a good credit history. However, many students are not prepared to assume the responsibility of using a credit card and managing its debt. On average, college students who carry a credit card balance from month to month owe more than $2,000. Misuse of credit cards not only can cause financial problems, but also academic and psychological concerns. Some students may have to get a part-time job or quit school to pay their debts.
Parents and students should discuss credit card options and settle on a card that helps introduce young adults to responsible credit card use.
A traditional credit card gives young adults total independence. Federal law considers anyone over 18 as adults and holds them legally responsible for their debts. In some cases, a parent may need to co-sign for a young adult's credit card.
Student credit cards usually have lower credit limits and can help reduce the risk of accumulating large debts. These lower limits only help if the student has one card and promptly repays debts. Similar to traditional cards, the student is considered the primary cardholder and is responsible for debts. However, the cards usually have high interest rates.
Secured cards, intended for cardholders with little or no credit history, require a deposit equal to the limit on the card and carry a higher interest rate. Students have total independence within the limits established by the deposit.
If students aren't ready to independently manage a credit card, other options are available that allow parents to supervise their child's spending habits.
Parents can add their child as an approved user to their traditional account. As primary card holders, parents receive the bills and can monitor the charges.
Or parents can choose a safer alternative to a credit card. A "teen" or "smart" card is not a credit card, but a card which lets parents or students deposit money in an account. Purchases are deducted from the account, and when funds are exhausted, the account must be replenished or the card cannot be used. Young adults older than 18 have more flexibility, but some companies let parents restrict the types of purchases or monitor the account online.
No matter what type of card parents and students agree on, it's important to encourage children to establish a budget and live within their means. Define the difference between wants, needs and emergencies. Students should limit themselves to only one card and resist free offers that often flood college campuses, enticing students to sign up for credit cards with free T-shirts, sunglasses, posters and other incentives.
It also is important to track charges. A credit card wrap, a plastic or paper sleeve that holds the card, slows down the user and may allow more time to think about using the card at the time of a purchase.
Finally, pay monthly bills in full and on time. Interest and late fees can substantially increase the total amount owed.
Regardless of the option selected, careful credit card use and prompt repayment of debts can help students learn to manage their finances responsibly.
