Credit card tips for college kids
By finding a card with a low rate and avoiding cash advances, students can protect themselves from future financial hardship.
By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- It's no secret that credit card companies love college students. And they'll shower them with everything from free T-shirts to beach towels just to get their business.

That's because these kids are potentially lifelong customers who will spend, spend, spend says Bill Hardekopf, CEO of LowCards.com, a consumer credit card information Web site.

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The average college freshman carries over $1,500 worth of credit card debt, according to a 2005 study published by the student loan outfit Nellie Mae. And by graduation, that amount has nearly doubled.

But college student or not, credit card debt can put your credit score on a fast track to ruin. And that can hurt a graduate when it comes time to buy their first car or even a home.

So before your son or daughter signs up with that credit card representative on campus who is handing out freebies, have them do a little research. It could not only save them from some headaches later on, it could save them some money right now.

Find a card with a good rate. Zero percent interest for the first six months. It may sound like a good deal, but what students should keep an eye on when shopping for a new credit card is the annual percentage rate.

Since those rates can reach 18 percent or higher, students should try to seek out cards with a low rate just in case they are not able to pay the balance off in full every month, says Hardekopf.

Avoid annual fees. Students should skip cards that charge annual fees. If you can find a card company that is willing to give you an equally low interest rate and no annual fee, why spend the extra money?

Keep it to one card. While 56 percent of students in their final year carry four or more credit cards, according to Nellie Mae, students to stil to just one.

Otherwise there's an "incentive to run up more and more debt," Hardekopf says.

Take care with reward cards. As enticing an offer as accruing airfare miles may be, James Boyle, president for the non-profit organization College Parents of America, warns that college students may want to be careful if they decide to go with a reward card.

That's because the cardholder gets rewarded only when they spend a lot and if they do not carry a balance on their account.

"Students new to the credit card world may be unnecessarily lured into spending money to get rewards and get penalized," says Boyle.

Card responsibility

So they've finally gotten that shiny piece of plastic, with their name embossed at the bottom - now what?

Time to have your college kid exercise some credit card responsibility by showing some restraint and have them pay the balance in full every month.

Spend for emergencies, not expenses. Maybe your kid told you they wanted a credit card "just for emergencies." Sure, it's a legitimate argument, but just make sure they stick to that plan and avoid using it for basic college expenses such as food, entertainment or even worse, tuition.

Experts instead recommend that students and parents explore all of their financial aid options and possibly taking out even more loans before resorting to a credit card.

"Loan options should be exhausted before turning to a credit card to meet the basic expenses of college because interest rates with loans are much better than any credit card," says Boyle.

Pay on time. If necessary, make sure you child mails their payment at least a week before it is due. It may seem like overkill, but it's better to make sure the credit card company gets the payment on time rather than paying unnecessary interest charges.

Just say no to cash advances. A common trap that many students fall into is getting a cash advance from their credit card just so they don't have to call Mom and Dad to ask for money.

But that can be a big mistake. Chase's Student Flexible Rewards Card, for example, carries an 23.99 percent variable interest rate on all cash advances, far higher than its annual percentage rate of 17.99 percent.

"They are going to pay an extremely high rate for that," says Hardekopf.

If things get bad. But let's assume a worst case scenario. Suppose that your son or daughter exceeded their card limit during spring break and it looks doubtful that they are going to be able to make the minimum payment.

The best thing students can do, says Hardekopf, is have them talk to their credit card company.

The company won't forgive their debt, but there is a possibility that they might lower your son or daughter's minimum payment and possibly drop the interest rate a point or two.

"If you, as a consumer, are falling behind, tell the credit card company - they would much rather work with you than have you go bankrupt," says Hardekopf. "They don't want to see you default."

For the credit card averse

So what if your are adamant about the idea of having your college kid get their own credit card, or are worried that they won't be able to rein in their spending if they add some plastic to their wallet?

Experts note that there are plenty of ways to get around that.

One option may be to add your child to your own credit card.

That may smell like a recipe for disaster, but most card companies are willing to let you open another card on your account, and will let you set a limit on that specific card.

On top of that, since you get a copy of the bill every month, you can track any purchases your child makes.

And if a credit card is completely out of the question, there is always the debit card, says Boyle, which typically carries a Visa or Mastercard logo.

"For students, the debit card is an excellent solution since it allows for budgeting and when the money is spent - it's gone."

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Related: Who's afraid of paying for college?

Related: Top 50: Most entry-level jobs for grads. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.