Diane (whose full name is being withheld), got her first credit card as a University of Cincinnati freshman.
"My parents always had them," she says. "I thought, 'Oh, that's the next step to becoming an adult.' "
Living in a dorm her freshman year and without a car, Diane said she had little to spend money on. She ate at the UC dining hall and she mostly stayed on campus. When bills came, they were small and easy to pay on time. But she moved into an apartment her sophomore year, and "things got bad," she says. Diane charged $1,570 on her MasterCard $70 over its limit.
"Going out to eat -- that added up more than anything else," she says. Busy with schoolwork, Diane ate out at least once a day and occasionally bought dinner for her friends. She also spent more on clothes than she would have without a credit card.
"I always knew it was coming when I made big purchases," she says, but it was the $5 lunches that really added up.
Soon the fees and interest compounded Diane's problem. Unable to pay the whole balance, she paid only a little more than the minimum each month. But interest, a few late payment fees and over-the-limit fees added up to an $1,800 balance -- not counting a second, less-used credit card.
And Diane was lucky. As she recalls, the card had about a 10 percent interest rate with no annual fee. Credit card companies sometimes charge 18 to 20 percent, according to credit counselor Greg Scott.
"That's what we see every day," he says. "People's balances go up and up, even though they haven't used their credit card in years."
Scott works with AAA Credit Counselors, a non-profit organization in the City Centre Mall, Middletown.
He helps debtors set up repayment plans to help pay their balances without going further into the red.
Credit-card companies target college students because they are more likely to spend money freely, Scott says. "They hook them while they're young."
Anyone with a large balance needs to make more than the minimum payment, Scott says. "It's like Las Vegas when you play Blackjack; the house always wins."
College students and older credit-card users charge similar balances. The difference, Scott says, is younger people should have fewer expenses. "What would they possibly need (a credit card) for?"
There's always a chance of an emergency, but that is seldom the case.
"Very few, if any, have an emergency," Scott says. For those who do, he suggests phoning home.
What about building a good credit history?
"Building good credit is a double-edged sword," Scott says. "It's a good idea to have good credit, but there's a responsibility that goes with it."
To a credit bureau, there's no difference between a $200 limit and a $10,000 limit, he says. "Keep the limit small so you don't exceed it."
Students determined to fill their wallets with plastic should find the card with the lowest interest rate and no annual fee, according to Scott. But credit-card companies will offer low introductory interest rates to lure people in, then raise the rates later.
"The major thing is, you've got to pay the bill," Scott says. "It's like a gun or a hammer; if you use it right, no problem."
A debit card withdraws funds directly from the holder's checking account, providing another cash-free payment option. But beware: many Visa-backed debit cards will allow you to overdraw your account and send you a bill for the difference, Scott says.
So, let's say that you just need that T-shirt from the ABC Credit Card Company's campus booth, but don't want the card. You apply anyway and are approved. What happens now? If you activate the card, but don't use it, Scott says, it can't hurt you or your credit rating. But, he says, it isn't a good idea to have open credit just lying around.
College campuses are a choice venue to attract credit-card applications. But credit-card companies can't set up everywhere. Northern Kentucky University won't allow credit-card companies on campus. At Miami University and UC, credit-card companies must pay student organizations to sponsor them. So far, no credit-card companies are scheduled to be at Miami for the fall. UC students, however, will find College Credit Card Corp. of Philadelphia passing out applications through the first week of school. (After repeated phone calls and transfers, a College Credit Card representative could not comment, and could not immediately find someone to comment.)
Xavier University has a give-and-take approach to offering credit-card companies access to students. Xavier's goal is to help students have "financial wellness," says Tom Barlow, director for auxiliary services. Before Xavier will allow a bank or company on campus, the company must first educate students in credit management. That includes holding credit-management seminars a couple of times per semester and offering educational information online. Barlow says the seminars usually attract 40 to 50 students.
Barlow says credit-card companies rarely set up booths on campus, and he found it "extremely odd" that an XU student reported seeing a GTE Visa table in the Williams College of Business last month. Barlow says he wasn't aware of any agreement between GTE Visa and Xavier.
These days Diane, after almost failing Credit Cards 101, buys with cash as often as she can. But she holds credit-card companies partly responsible for student debt.
"I think credit-card companies are evil for soliciting so much from younger people," she says.
Diane has paid her bill, but not before a bit of heartache. Her mother left an "awful, awful message" on her voice mail after discovering one of Diane's bills. She sat down with her parents for an entire evening to discuss the situation. "They couldn't understand where the money went," she says. Her parents thought she might be supporting someone else or had developed a drug habit. In the end, they decided to use money earmarked for Diane's education to take care of the bill -- money that she must pay back.
If her parents hadn't found the bill, Diane says, she would have kept it a secret from them and tried to pay it off a little at a time. She was "scared to death" of how they might react and worried they would think she was irresponsible. "I felt it was something I got myself into, and I wanted to get myself out."
Though she feared her parents' reaction at first, Diane is glad they found her bill.
"A big burden has been lifted off me now that the debt is gone," she says. ©
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