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When extra credit is bad
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September 5, 2000: 8:22 a.m. ET
Many learn about credit cards in college; you don't have to learn the hard way
By Staff Writer Mark Gongloff
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NEW YORK (CNNfn) - For many Americans, college is an introduction to the rigors of adulthood. You move out of your parents' house, learn to get yourself out of bed in the morning and discover the delicate balance between partying and academics.
Lately, however, more college students are being exposed to another grown-up headache: credit-card debt.
According to a study by the American Savings Education Council (ASEC), 55 percent of college students had a credit card in 1999, compared with 7 percent of high school students. Another 15 percent of college students had a gasoline or department store card.
 The ASEC says credit-card recruiters -- attracted by a youth market with a disposable income that has risen with the booming economy -- lurk in high-traffic areas on college campuses, pushing gifts and other incentives to get students to sign up.
"Marketing to students is definitely working, as many of them end up signing for as many as five to six credit cards," ASEC president Don Blandin said.
It's a trend that concerns the ASEC because young people have a less than perfect track record at managing their finances responsibly, Blandin said. And that doesn't just apply to college students.
Danny Devine, a spokesman for the Employee Benefit Research Institute (EBRI), which cosponsored ASEC's study, teaches high school tenth-graders about personal finance and finds their lack of knowledge "disheartening."
"One of the things that was striking was how little knowledge of basic financial information they have, despite the amount of money they have to spend," Devine said. "Some have significant disposable income, but when you ask them what an IRA is, they get stumped. They don't fully understand the concept of compounding interest."
According to the ASEC survey, 28 percent of college students "roll over" their credit card debt each month -- a definite no-no according to financial planners who stress the longer you leave your debt unpaid, the more it ends up costing you.
By making just the minimum payments, they insist, you not only stretch out the number of months and years it takes to pay off that loan, but at interest rates of anywhere from 10 percent to 20 percent or more, that simple purchase with the plastic can end up costing you significantly more.
"Parents are often in worse shape"
Steve Rhode, one of the co-founders of Myvesta.org, an online debt-counseling firm, said parents often don't do a good job preparing their kids to handle credit. Still, he said, the situation may not be as bad as the ASEC study suggests.
"We have college students that visit us and ask us questions, but their parents are often in much worse financial shape," he said.
Rhode said the average credit card balance for college students is a modest $584. "College students do a pretty decent job of managing money," he said, adding "they haven't had a chance to get in real trouble yet."
 Sally Arthur, the assistant vice president for student life at New York University, agrees, noting student credit card debt "appears in the media to be a bigger problem than it actually is."
But she did say credit card debt "is something we constantly think about," and the university has barred credit card companies from marketing to students on the NYU campus.
Nevertheless, most financial planners stress it's important for college students to educate themselves on money management skills, including the appropriate use of credit cards, before they actually graduate.
Rhode said the real debt trouble often comes after graduation, when graduates buy a car, begin making payments on their student loan, invest in suitable work clothes and move to a new town. Paying for all those expenses with plastic can make the transition a lot more stressful -- and expensive -- in the long run.
"This robs you of your future," Rhode said. "The more in debt you become, the less flexible you are."
Tips for staying out of trouble
The ASEC offers the following tips to help students ward off crippling credit-card debt:
- Read the fine print. Just because a credit card company offers you a free toaster for signing up doesn't mean it's a good deal. Many unbelievably low introductory interest rates turn into unbelievably high rates after their expiration date. Also look out for annual fees.
- Keep up with your bills. Skipping payments and paying late hurt your credit rating and your ability to get more credit in the future.
- Don't spend what you don't have. Make sure you have enough money to pay off your credit card at the end of every month.
- Exceed the minimum payment. Making only the minimum monthly payment on your bill probably means you're just covering your monthly finance charges and not actually paying down any debt.
- Communicate with your card company. If you get behind on your payments, talk to your credit card company and see if they can help you re-organize your payments.
- Sign up for just one card. Having a wallet full of credit cards may look impressive, but it's not necessary and can get you in real trouble.
- Shop for a good APR. Cards for first-time holders usually charge an annual percentage rate (APR) of 18 percent to 20 percent, but you can lower that significantly if you establish a good credit history. Look for the best rates available.
It's also a good idea to learn the basics of how a credit card works, how finance charges are computed and the consequences of misusing your credit card or failing to pay your debt. Check with your school's student affairs office to see if they offer any credit counseling. NYU, for example, offers credit counseling online.
Don't blame the card
Rhode said a secured credit card could be the best solution for many first-time cardholders. With a secured card, you give the credit card company a chunk of money when you first get the card, sort of like a security deposit on a lease. If you get in trouble and can't pay the card, your security pays it off and your credit rating is not affected.
If you do get yourself into credit card trouble, Rhode said the first thing you should do is to stop using the card. "The best way to climb out is to stop climbing further into debt," he said. He also suggested making more than the minimum payment. If you find yourself in really bad trouble, get professional help from a financial planner.
Also, it's good advice to contact your creditors as soon as you can. Let them know what's going on. Again, many are forgiving if it's your first offense and will allow you to set up a lower-payment, but longer-term repayment plan. That, in turn, will keep your record clean and keep you out of bankruptcy court.
(Click here for a story on Life after bankruptcy.)
Just don't blame the credit card. Properly used, a credit card can build good credit and offer you more financial freedom. As Rhode pointed out: "A credit card is just like a hammer; if you go to Home Depot and buy a hammer and kill somebody, you can't blame the hammer." 
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