Page 329 - Keys to College Success

Debt is a costly burden, and can drain your finances for years to come, costing you
an enormous amount of money in interest charges. In addition, the consequences for
defaulting on a loan are severe and include credit trouble, money taken from your sal-
ary, and more. Look at your needs year by year and make sure you are only taking out
what is absolutely necessary.
Several organizations provide help and advice on the topic of loan management.
One is Finaid.org. Another is the Consumer Financial Protection Bureau, which has
created an online tool called the “student debt repayment assistant” found at www.
consumerfinance.gov. This interactive tool asks questions that help you figure out your
options and calculate monthly payments. 15

Credit Card Use and Abuse
Credit cards are a handy alternative to cash and can reward you with a strong credit
history if used with a reasonable level of risk. But they also can plunge you into debt.
Students are acquiring cards in droves. In fact, in 2009, only 2% of undergraduates
had no credit history. Credit cards are a particular danger for students, because so
16
many lack knowledge about how credit works. Too much focus on what they can pur-
chase with credit cards (rather than how much it will really cost them) leads students to
spend more than they can afford. Recent statistics illustrate the situation: 17

■ 84% of all students have at least one credit card and 50% have four or more
credit cards.
■ Students who hold credit cards carry an average outstanding balance of $3,173,
and seniors graduate with an average of $4,100 in credit card debt.
■ 82% of students don’t pay their cards in full each month, and therefore pay finance
charges.
■ 90% of students pay for some type of education expense on credit, including 76%
who charge textbooks and 30% who use cards to pay tuition.

Many college students charge expenses like clothes, food, and school costs. Before
they know it, they are deeply in debt.

11 How credit cards work
CHAPTER To charge means to create a debt that must be repaid. The credit card issuer earns

money by charging interest, often 18% or higher, on unpaid balances. Basically, if
you carry an unpaid balance, you are using someone else’s money and paying extra
cash (the interest) for the privilege. Credit card companies are in the business to
make money off card owners like you. Focusing on what’s best for your finances is
your job, and the first step is to know as much as you can about credit cards. Start
with the concepts presented in Key 11.6, read the fine print about any card you are
considering, and stay focused on productive rewards that are worth the risk of spend-
ing on credit.
Watch out for these policies and problems, both when seeking a new card and
when looking at existing card statements: 18

■ New fees. In addition to annual fees, a card may charge fees for reward programs,
paying your bill by phone, or even checking your balance. Find out what the fees
are, and switch cards if you feel they are excessive.
■ Reward program changes. A reward program you’ve enjoyed for a while, such as
airline miles or cash back, may change. Cards may charge for reward programs or
may change or remove them if you are late with a payment.
■ The universal default clause. This increasingly common policy allows a creditor
to increase your interest rates if you make a late payment to any account, not

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