Avoid the Credit Card Trap - Brief Article

Career World, April, 2001

You have finally arrived at school! Near the bookstore is a crowded booth. A student walks away smiling, carrying a new T-shirt.

That student is the proud owner of a new T-shirt and a new credit card. He received the T-shirt by signing up for the credit card. Now he can buy anything he wants or needs, and he'll be building a credit record. The salesperson said this can help him later in buying a car, obtaining a mortgage, or getting hired.

Credit cards aren't all good news, however. If you use them in the wrong way, that free T-shirt will end up costing you a lot.

According to Credit Cards on Campus, a Georgetown University study, four-fifths of college students have a credit card by the end of freshman year. Although you have little or no income, credit card companies know you eventually will--and think they'll make money from you in the meantime.

Here's how to avoid getting into trouble:

* Don't think of your credit card as "free money." It is really a loan card, and you must pay it back.

* Pay off the full balance on time each month. More than 25 percent of students don't, according to a Public Interest Research Group study, The Campus Credit Card Trap. Say you spent $1,000 and your card charges you 18 percent interest on the balance. If you pay only the minimum, which is mostly the interest, it will take you six years or more and a total of $1,559 to pay off your debt!

* Read the fine print. A low interest rate on purchases, such as 3 percent, can be increased to 20 percent or more a few months later.

* Plan to pay off your card once you graduate. Sharon, a 1998 graduate, recently had to move back home with her parents to get her credit card bills paid off.

* Don't pay late. You'll get charged additional fees. Twenty-eight percent of students pay late occasionally. Credit card companies make millions of dollars a year on these fees.

Besides avoiding these pitfalls, here's how you can be card-smart:

* Use a debit card instead. It's used like a credit card, but the money is deducted from your bank account like a check. You can't spend more than you have. So you have to keep a record.

* If you do apply for a credit card, know how much you can borrow (your credit limit), the annual fee (there should be none), and the interest rate.

* If you do get into debt, tell your parents early. It will be tough, but it's better than the consequence--damage to your credit rating.

* Resist the spending temptations--just say no. Representatives will try to entice you to "join the club," but it's OK to walk away, says Dr. Mallary Tytel. "It's not personal. What they want is your business, and your money!"