Credit a trap for students

Credit cards—they’re easy to get, they’re fun to use, and they can get you into a whole mess of trouble if you’re not careful. More than 1.5 million college-age students in the United States are expected to drop out of college in 2008 because of money issues, says Bill Pratt, author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit, Debt & Cash. He says academic failure comes in a distant second, representing 6 percent of all students.

According to the Consumer Credit Counseling Services, the average student leaves college with a credit card debt of between $8,000 and $10,000 (student loans not included). Credit-card debt hit more than $600 billion this year—almost half of that amount is owed by college-age students or new graduates.

Especially near the Union, you’ll see credit card marketers pitching low interest rates, free water bottles, candy and T-shirts to any student who signs up for a credit card. Although college tabling marketers get a lot of attention, only 18 percent of student credit cards are issued this way. The largest percentage of student cards (35 percent) is opened through direct mail.

Some people blame the industry for making it too easy for students to obtain credit cards. However, rather than assign blame, college students need to be informed, read the fine print and take responsibility for their decisions.

It isn’t the credit card company’s fault you decided life wasn’t complete until you overspent your budget on a PlayStation 3 and “Rock Band” game set. It’s an issue of education and self-restraint—the ability to delay gratification and wanting in exchange for things that are more important.

Credit cards are convenient and a way to establish a good credit rating. Yet, for many it is far too tempting to charge for items that you don’t have the cash to cover. Don’t exceed your credit limit and make certain you have the money before you charge. At a rate of 18 percent interest, it will take 25 years of minimum payments to pay off a $8,000 loan, and will ultimately cost $24,000. Paying off credit debt as it comes due is your best investment.

Michael Panzer, a financial investing guru, highlights last summer’s subprime meltdown, which involved about $900 billion in now-suspect securitized debt, reckless lending and consumers who buckled under the weight of loans they couldn’t afford.

Today, the United States is looking at more than $915 billion in credit card debt (an uncannily similar figure) that, like the housing industry, could blow up on our nation’s leading financial institutions. This is how a recession happens.

If you can’t figure out how to budget your finances, take a class in money management or talk with a financial adviser at your bank. Debt you can’t afford doesn’t just hurt you, it hurts our economy as people live off borrowed money without doing anything to repay it or create wealth and value.

http://www.dailyutahchronicle.com/opinion/credit_a_trap_for_students