College students are often targeted by credit card companies, as they love to socialize, shop, and generally enjoy themselves.
Higher education is designed to prepare young adults for a career and adult life. Students also expect to be involved in many activities and to have fun while attending college. No student expects a large credit card debt to be a result of their higher education. However, college students today are amassing huge amounts of debt when they do not have the income to pay it off. Financial organizations are discovering that college students will often apply and receive several credit accounts. This sets up young adults for credit problems in the near future, such as the inability to take out car or home loans. Credit scores are often too low for them to be considered a good loan risk.
Financial institutions are taking advantage of young adults and are causing them to risk financial stability in their futures. This means that fewer young adults will be able to buy their own home after graduation, according to a leading national homeowner’s association.
Alternative approaches: While its nice to have college student credit cards for the occasional car repair or the new outfit for a prom or dance, there is no need to take out several and charge the maximum amount on each of them. A prepaid card or debit card should become the main source of payment for college students.
Gift cards and preloaded cards are ideal for college students, because they prevent the young person from ruining his or her credit before graduating. Parents and relatives can add money to such cards if needed. Such cards can be used to establish a positive payment record and will prevent the student from earning a low credit score. This will be beneficial in the future, when the student has graduated and is working full time. At this point the young person will be able to handle an excellent credit score mortgage and will have the good credit score for a low interest loan.
Living a life without relying on credit requires dedication and a willingness of parents to set an example. It requires having open discussions with children about credit and financial responsibility. There are many new books available that offer tips for teaching college students how to properly manage credit. Some of those tips are explained below.
Be honest. Explain to the college student why he or she is likely to be targeted by banks willing to issue credit cards. When the student realizes he or she is being targeted to be taken advantage of, it is easier to resist the temptation.
Talk about personal experiences. Children often see their parents using credit cards. Often they do not see the bills that follow. Explain how they work, the types of interest rates involved and why paying a minimum each month is not a good situation to be in. Let them know that paying the bare minimum will never allow a person to get ahead.
Offer a card for emergencies only. Parents do not need to physically hand the student a card if they think it may be abused. Keeping it available for car or medical emergencies is a great way to teach responsibility. The card should not be used for dining out, shopping for clothing, or a night of partying.
If parents do hand the college student a credit card, it can be given with a set limit. Explain what will happen if the young adult goes over the limit. Make sure to fully explain how much the student will be responsible for.
Taking a few moments to discuss credit and how credit cards work can make going off to college less stressful. It can certainly be helpful in allowing a young adult to establish his or herself in the future. A temporary diet of hot dogs and beans is a small price to pay for the ability to own a home later in life.