How to Responsibly Manage Credit Cards in College

By Dawn Handschuh, Personal Finance Writer   

The third in a three-part series...

Meet Steve Spender. He may be pre-med, but he's majoring in debt. And he's a credit card company's dream customer. That's because he's a big spender, likes to be among the first to try out new gadgets, picks up the tab when out with friends, and has only a vague understanding of how credit cards work. He knows that if he can't make a payment, chances are Mom and Dad will bail him out.

Chronic credit card debt in America is a growing problem. So how can we expect teens to manage debt responsibly when many adults have trouble doing the same? For a college student with little or no income, even a small balance can quickly become overwhelming.

A student who makes only minimum payments on a modest $1,500 credit card balance with a 21% interest rate won't have that card paid off for 10 years, and that's after spending an additional $2,096 in interest.1

College students are a prime target for credit card offers — on campus, through the mail or on the phone. While laws limiting lenders' presence on college campuses exist in some states, there are steps that parents and their children can take to sidestep credit card problems in college.

If you want your child to avoid credit cards completely (at least for now):

  • Explore other alternatives where you retain more control, like debit cards, checking accounts, or adding your child to your own credit card account with a fixed spending limit on your child's card.
  • Ask your child's school not to share his name with its credit card partners. (Schools often sell student lists and contact information to credit card marketers.)
  • To reduce the volume of mailed solicitations, help your child opt out by calling 1-888-5-OPT-OUT.

If you're open to your child's limited credit card use:

  • Shop around, as terms vary widely.
  • Limit your child to one credit card.
  • Direct the lender to freeze the credit limit with no automatic increases.
  • Read all disclosures, particularly those concerning fees.
  • Bypass reward cards, which only give rewards if you spend lots of money.
  • Avoid cash advances.
  • Teach your child to pay off balances monthly, or at least to pay more than the minimum.
  • The card should be used for emergencies only. Exhaust other options before using credit cards to pay for tuition.
  • Urge your child to attend the school's financial literacy courses.
  • Make sure your child understands:
    • The danger of making minimum-only payments
    • How quickly late fees can pile up
    • The damage that even isolated late payments can inflict on credit scores, and the role that credit scores play in future financing needs

Whether or not credit cards are a part of your children's college experience, tell them there are always "strings attached" when it comes to on-campus credit card marketing. By discussing it in advance, you can help them better resist the temptation to fill out credit card applications in exchange for trinkets or food. And, finally, always remember that your own spending and credit habits teach your kids more about money management than anything else.

Also in the series on credit cards and students: Credit Cards Flood College Campuses

Footnote

1 "Graduating Into Debt: Credit Card Marketing on Maryland College Campuses," Maryland Consumer Rights Coalition and Maryland Public Interest Research Group, February 2004