Ask The Expert: Students Should Be Wary of Credit Cards
Mon, Sep 01, 2008
Thousands of college students started classes last week, and many students will be faced with the decision of whether to start using a credit card.
The average undergraduate student will have $3,000 in credit card debt when he or she graduates, and 76 percent of students have credit cards, said Brian Myres, head of sales for ING Direct.
They are a prime target market, he said. If a student has $3,000 in debt and pays a minimum payment of $60 per month at 14 percent interest, it will take that person 24 years to pay off that debt. And they will end up paying more than twice the amount he or she borrowed, Myres figured.
That, of course, doesn't include what borrowers may pay in late fees or other fees. "Students are a very profitable niche," he said. Then combine that with the average amount students pay for school loans. Students carry an average of $20,000 in loan debt after graduation. So for example, at $200 per month for 10 years, with an interest rate of 6.8 percent, that's an extra $6,900 in interest.
"That's a big nut for those students to have to crack," he said. A sound credit history is important to get loans and even get a job. Myres said many employers check credit backgrounds to find out whether the person they are hiring is stable.
When it comes to credit, college students may need some help. University administrators say they lose more students to credit card debt than to academic failure, Myres said. "That's really kind of a sad commentary," he said. He offered the following tips for success with credit: Pay the maximum, not the minimum.
"The worst thing you can do is pay the minimum payment," he said. As he said earlier, it can take the average student more than two decades to pay off a credit card. Pay as much as you can or even pay off your balance. Set your own limit. Banks set credit limits that are in their interest, Myres said. So set a limit that's different from the $2,500 or $10,000 that a lender makes available to you. You'll be less likely to get in trouble.
Beware of fees. In other words, choose your lender carefully. Whether it's a bank or a credit card or any other type of loan, many fees can come with a deal that sounds good. Maybe it's overdraft fees that forces you into debt. Maybe it's an outrageous interest rate. "Unfortunately, if (it's) not managed well, it's a snowball effect when (students) get tripped up by various fees," he said.
Budget carefully and expect the unexpected. To ensure success with credit cards, one must ensure overall financial stability. That means have a savings to dip into in case your car transmission goes out, for example. And budget well so you don't have to turn to your credit card for everyday living.
News Source : http://www.sctimes.com/
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