Archive for Monday, August 11, 2008

Drowning in debt: Wise use of credit can preserve students’ financial security

Spending in college offers fiscal hazards

August 11, 2008


On the street

Do you have a credit card?

No, that’s trouble. A lot of my friends have them, and they’re all in debt. Every time I get a preapproved offer in the mail, I throw it away.

More responses

Keep cards on a tight leash

When college students realize they can't pay their credit card bills, it isn't necessarily because they bought a high-dollar video-game system or other big ticket item.

It's the little things that get them, said Walter Glaude, a counselor with Housing and Credit Counseling Inc. in Topeka.

Using a card to pay for pizza, beer, soft drinks and alcoholic drinks for themselves and friends is not good, he said. It all adds up and so does the interest on unpaid balances, Glaude said. Gasoline is another frequently charged expense, he said.

"If it can be consumed or digested, it shouldn't be bought with a credit card," Glaude said.

Parents should know how their children are using credit cards. Glaude said he doesn't know of any way for a parent to obtain a card that restricts certain items from being purchased. Parents can, however, monitor the purchases being made by going online, he said.

Here are other credit card usage tips:

¢ Use the card only for emergencies.

¢ Be sure payments are on time. High fees follow late payments.

¢ Know your credit limit.

¢ Do not use the card for cash advances. The interest rate for cash advances is between 20 percent and 25 percent.

- Mike Belt

Walter Glaude can tell one financial horror story after another, and many of them involve college students.

Such as the one about two college seniors he recently talked with who had accumulated debts of more than $40,000 each by using credit cards.

"They were using it to supplement their income while they were in school," Glaude said. "That's ridiculous."

Glaude is a counselor with Housing and Credit Counseling Inc. in Topeka. He talks with about 20 college students a month who are seeking help because they owe too much money. Credit cards usually are the problem.

A few students are so far in debt their only option is to file for bankruptcy protection, Glaude said. A young married couple who were just out of college had to use that option, he said. He owed $45,000; she owed $28,000.

"That's sad because they are already starting off behind," he said.

More than half of the nation's college undergraduates got their first credit card when they were 18, according to the Nellie Mae Corp., a student financial aid firm. More than 90 percent of students in their final college year have cards, and 56 percent carry four or more cards. The average amount owed by undergraduates with cards is $2,169, Nellie Mae found.

Glaude said he thinks there should be a law restricting people from getting credit cards until they are 21.

"I think it should be just like drinking," he said. "I think that you should have to be out on your own a little bit first."

Kansas University is establishing a task force to study student finance issues, including credit cards. Its first meeting is set for this month.

The task force will research and implement methods for educating students about financial skills and making them a priority, said Stephanie Covington, associate director for student financial aid who is on the task force.

"We will be looking at all of the things that are already being done on campus and researching what other universities are doing," Covington said. "Personal finance is usually one of the top reasons why a student will leave a school."

Among task force members are representatives from the offices of student financial aid, chancellor, provost, student housing and legal services. Students also will be included, as will Robert Baker, an HCCI credit counselor in Lawrence. Baker also talks to students in finance classes and seminars. He was on vacation last week and unavailable for comment.

KU's financial aid Web page,, has a "financial literacy" link with information about credit cards and their pitfalls. Counselors from the office make presentations to students about financial aid and other financial matters, including credit cards, Covington said.

"We don't want them to get into a situation where they can't buy a car or a home after they graduate," she said.

Reasonable credit card use, however, is good because it builds a student's credit rating, Covington said.

"We're not saying don't have a credit card, we're saying use it wisely," she said.

KU, in accordance with a Kansas Board of Regents policy, has restrictions on credit card solicitations. No solicitation can take place on campus during the week before and two weeks following the first day of each semester. Educational material on the use of credit cards is included in student orientation programs.


scottr10 9 years, 2 months ago

Graduating with a ton of maxed out cards is a bad start in the marketplace, but learning how to manage them during college should be part of the education experience. Good thread on the topic here:

Godot 9 years, 2 months ago

KU should stop selling the names of its students to the credit card companies and credit card companies should not be allowed to solicit business on campus.

Godot 9 years, 2 months ago

I had a rental applicant, a grad student, list his student loan as "income."

storm 9 years, 2 months ago

Sounds like the couple filing for bankrupty are better off then all the other alumni making payments. With a good salary, they'll be fine. No one really needs to buy a house right after college, anyway.

Daytrader23 9 years, 2 months ago

How about a pay as you go system. Golly NO, Daytrader. Then how are we going to keep up with the Jones or with you? Well I became rich because I payed as I went and saved enough to start investing and the rest is history. I have zero debt and my bank accounts have plenty of zero's behind the first few numbers. So yes it does work.

Adrienne Sanders 9 years, 2 months ago

Agreed with Godot, credit card companies should not be allowed to solicit on campus or be aided by the university in any way.I had zero credit card debt when I graduated, but nearly $20K in student loans. What's the difference? A slightly lower interest rate on the loans, that's all.

Alison Roberts 9 years, 2 months ago

I declared bankruptcy when I was 25... but only because a former roomie of mine stole my identity and opened a ton os CC's in my name, ruined my credit, and skipped town. Lovely. Im done paying it off now, but I still have to rebuild everything from scratch and pay off my student loans (they are only 5K).

Solutions101 9 years, 2 months ago

"Glaude said he thinks there should be a law restricting people from getting credit cards until they are 21."-Everyone should not suffer for a few people's irresponsibility. You are legally an adult at 18. You are required to pay taxes, can go to jail/prison, fight/die for your country, etc."I think it should be just like drinking," he said. "I think that you should have to be out on your own a little bit first."-The only reason the drinking age is 21 is because the Federal Government BRIBED the states; they said they would withhold their funding of public roads (a concurrent power!!) if the state did not change their laws, while disregarding public/taxpayer safety."We don't want them to get into a situation where they can't buy a car or a home after they graduate," she said.-That is not something that is actually "needed" to survive or obtain a job/profession; therefore, it should not be their concern to say what students should spend their money on and encouraging one to be in more debt. How is that their goal? They should be more encouraging for employment and graduate school, not getting into more debt.People are responsible for their own actions. Young alumni should not be allowed (or want!) to file bankruptcy. It's a cop-out where they could live luxuriously, spending their money unwisely during school while other students lived on Romain noodles. They could work a couple years and pay off all their debt. Is is fair to exempt their irresponsible choice to be in debt?

Shardwurm 9 years, 2 months ago

You know what else could help?Charging reasonable fees to attend school instead of crippling the middle class with a debt load of gargantuan proportions.Your average middle-class student is going to leave school with the equivilent of a house mortgage strapped to their back. That's a lot of disposable income that WON'T be spent on cars, housing, and luxury items.Instead of preparing the youth for the future...our lovely higher learning institutions are crippling them.

KURocks 9 years, 2 months ago

VAVS:If you filed for BK, why did you pay off unsecured debt. Secondly, if the accounts were fraudulently opened, you are not responsible for the debt. Your story does not make sense.

Boeing 9 years, 2 months ago

I think the smartest thing my parents ever did was raise me in the mindset that financial responsiblity will get your further than anything else. I graduated KU with a 3.8 GPA, but I am more proud of my credit rating - it will get me more places in life. I was also lucky in that I got a full ride to school, so I graduated with ZERO debt - student loan or otherwise. I guess I had my car to pay off, but that's it...

sgl8888 9 years, 2 months ago

I'm 28 years old. Had $20,000 in student loans after graduating but paid off last year. My wife and I don't have credit cards. Now my wife and I are working on getting her $13000 loan paid off. How do we do it? Discipline and not buying a bunch of stuff we don't need. The idea that you "need" a credit card to make it in today's world is ludicrous.

mmiller 9 years, 2 months ago

I'm 27 and used a credit card during my time at Washburn. I was very responsible and knew not to spend beyond my means. If I wasn't able to pay off that month's bill, then I clearly spent beyond my means!!!!Thankfully, my parents taught me financial responsibility.

sdinges 9 years, 2 months ago

"Glaude said he thinks there should be a law restricting people from getting credit cards until they are 21."I think it should be just like drinking," he said. "I think that you should have to be out on your own a little bit first.""This statement is silly beyond belief. By protecting people from financial responsibility until they're 21 they're going to magically learn it?My mother arranged for my first credit card when I was 15 years old. It had a 500 dollar limit and it started building my credit. She told me it was for emergencies and to never carry a balance. And I handled it. Because my mother didn't wait until I was 21 to teach me some fiscal responsibility.So at 20 I get myself married and move to the United States, and lose my perfect Canadian credit. I went to KU and got myself one of those lovely on-campus solicited cards and a student loan, because them and the government were the only people who would lend to a 20 year old immigrant with no credit! And somehow (was it magic?) I now have fantastic credit - with only the debt I choose to carry in order to continue to build that credit history.At 21 I was looking to buy my first house - not looking for my first credit card and my first beer!Instead of protecting young people from themselves, how about sending them out to get a job to help them pay for school.

denak 9 years, 2 months ago

As much as I agree with everyone about personal responsibility, the credit card companies aren't interested in giving people credit cards if they are responsible.The credit card companies target those who they know from past experience are going to use credit unwisely....and that is traditionally college students. Most college students do not know how to drink responsibly, use credit responsibly, or have a good work ethic because they are young. Most come straight from home and have little to no real understanding of the "real world."The credit card companies know they are going to mess up and they are fine with that because the companies make money off late fees and unpaid balances.I use to work for a credit card company and I can tell you first hand if two applications came in and one was for a 18 year old with a full-time job at Wal-Mart and an 18 year old with no income or a part time income from Wal-Mart and who was in school, they will go with the second one and deny the first one. The second one is more of a risk. They know that the second person is going to go to college, charge books, living expenses etc. Then when they get close to their max and they are late, the company can give them a late fee plus an over the limit fee.That is how they make thier money.Most adults know this and are aware of the games credit card companies play but college students aren't and before the student knows it, they are in debt big time.Credit cards are designed to make the company money. The companies are not our friends. They aren't here to help us get by in an emergency. They only want to make money. Why else would they let a 20 year old get 40,000 dollars in debt???DenaP.S. If you are interested in this topic, go rent the documentary "Maxed Out" It is a pretty accurate depiction of the credit card industry and the two stories about the college students who got in over their head will break your heart!

smootholive 9 years, 2 months ago

Students need to learn about credit BEFORE they start college. The problem is that many don't understand the consequences of missed or late payments, how default rates can exponentially increase their debts, or how their actions will remain on their credit reports for years.I got my first credit card when I was 18 with only a vague understanding of how credit worked. I knew it was important to be on time with payments, but I didn't know how to control my spending. At one point I found myself in $12,000 of credit card debt. But I worked full-time, paid it off, and managed to be completely debt free by the time I graduated.With all that said, I'm glad that I began building my credit from the time I was 18. As a 20-something year old, my credit ratings are the only thing helping me establish myself as a financially independent adult. It's how I got the apartment I wanted. It's how I was able to qualify for an auto loan without needing a cosigner. It's also how I secured a private loan for grad school with the most competitive interest rate out there.If I'd waited until I was 21 to start building credit, I would still have to rely on my parents to help me sign for things--and that's simply not an option because they're poor and have horrible credit.

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