Last Updated: August 24, 2009
Thousands upon thousands of young Americans are heading off to college for the very first time. You or someone you know may be among those who will get to enjoy the freedom and responsibility that come with attending a college or university.
Besides getting good grades, financial planners and other advocates say there's one big responsibility that you must consider: Watching your spending and credit cards.
"College is fun and there are many temptations. But you don't want to put yourself in a financial hole that you will be working your way out of years after the 'fun' is over," said FPA member, Harry K. Foote, CFP®, of Smart College Solutions.
And credits cards are among the temptations. "Credit card companies would love to establish relationships with college graduates and no time better than at the beginning of the college 'experience,'" said Foote.
And indeed that's the case. Despite the credit freeze, college students last year used credit cards more than ever before, including charging tuition and other direct education expenses, according to a recent study from SallieMae, a student loan provider. Consider this: College seniors carried an average credit card debt of $4,100 compared to $2,900 five years ago, according to the study, "How Undergraduate Students Use Credit Cards: SallieMae's National Study of Usage Rates and Trends, 2009." What's more, college freshmen tripled the amount of debt on their credit cards, going from $373 to $939 over the same date range.
The new CARD Act does put restrictions on credit card companies that could reduce the temptation to use credit cards unwisely. For instance, according to the National Foundation for Credit Counseling (NFCC), the new law will regulate aggressive credit-card marketing to college students. In years past, NFCC noted in a release that issuers enticed students to apply for cards by making offers of free t-shirts, beach balls or even chances for an iPod.
It's worth building a positive credit record, according to the NFCC. And thankfully you have some options. According to the NFCC, you could:
- Become an authorized user on your parent's card
- Get a secured credit card, and
- Get a card in your name
Another option, even if it doesn't help you build a positive credit record, is to pay in cash or use a debit card whenever you can. According to SallieMae, this is the simplest way to avoid debt. Learn more about SallieMae.
The NFCC recommends that parents should definitely talk to their children about whether students should apply for a credit card before the new CARD Act regulations go into effect in February 2010. According to the NFCC, the recently passed CARD Act will require a person less than 21 years of age to either document their ability to repay the debt or have a co-signer before being granted credit. Learn more about NFCC.
A financial planner can help you create a spending and credit plan. Find a financial planner.