A prominent consumer group wants college students to be aware that credit card companies will aggressively seek them out ahead of federal regulations restricting their marketing on college campuses.
Consumers Union, the nonprofit publisher of Consumer Reports, is also warning them that signing up for credit cards now could result in a higher-interest debt by the time they graduate. The group offers a package of helpful information for students and their parents at CreditCardReform.org.
“It’s open season on campus as credit card companies make one final push for the lucrative student market before new federal protections become law,” said Lauren Zeichner-Bowne, staff attorney for Consumers Union. “It might be tempting to sign up for a credit card but students should make sure they can really afford it and consider other alternatives to building up their credit record. A college education is expensive enough without piling on a mountain of credit card debt.”
Starting in February 2010, credit card companies will be prohibited from providing gifts on campus in exchange for filling out a credit card application. In addition, colleges will be required to reveal any marketing contracts they have with card issuers. Credit card companies won’t be allowed to issue credit cards to those under 21, unless the applicant has an older co-signer or can demonstrate their ability to repay card debt.
According to Sallie Mae, 84 percent of college undergraduates have at least one credit card, while more than half carry four or more. Each graduate leaves school with an average of $4,138 in credit card debt – that’s a 44 percent increase since 2004, according to Consumers Union. Only 17 percent of students pay off their balances each month, with the majority paying interest rates averaging 14 percent on their mounting debt.
For the average student who graduates with $4,138 in credit card debt, paying off that balance could take many years, especially if they only make the minimum payment. Students who make the minimum payment (typically 2 percent) on a $4,138 balance with a 14 percent interest rate, would end up paying $5,125.42 in interest over 280 months to pay off their bill, according to Consumers Union.
To get the word out to students, the group has assembled a “Credit Card Care Package” with tips and other helpful information for students and their parents at www.CreditCardReform.org.
Here’s a few of the tips from Consumers Union:
- Be cautious of the credit card companies’ marketing campaign. Credit card companies may offer everything from free college sweatshirts to iPods just to get students to sign up for a card.
- Make sure you can really afford to borrow money with a credit card. Before you apply for a credit card, ask yourself whether you really need one and how you’re going to pay for the money you borrow when the bill comes due.
- If you decide to get a credit card, shop carefully and make sure you understand your contract. Not all credit cards are created equal. Look for a card with a low fixed Annual Percentage Rate (APR) and a low or no annual fee.
- Be aware of teaser rates. Credit card issuers might offer you a low interest rate to sign up for a card, but if you’re a dollar short or a day late when you pay your bill, that low teaser rate can double or triple on the money you’ve already borrowed.
- Don’t use your credit card to finance your education: Credit cards can be one of the most expensive source of funds. Avoid using your credit card to finance your tuition, room and board, fees, books, transportation, and health insurance expenses.
- Use your card wisely. Pay off your balance monthly and make your payments on time. Pay attention to your balance to avoid going over your credit limit.
- Don’t co-sign for your friends. Co-signing for your best friend or anybody else is a bad idea. Their mistakes can ruin your credit.
