How to keep from falling into the pit of debt
What college student turns down a free dinner? Last fall, current rising College of Charleston senior John Ohrenberger walked by the Pita Pit on King Street and noticed a sign advertising a free meal for students who signed up for a Citibank Visa card. His parents had suggested he get a card and make one purchase a month, to establish a good line of credit for after graduation. It seemed like a good idea at the time.
A year later, Ohrenberger pays $25 a month on the $700 debt he accumulated, paying down the interest and only taking tiny nibbles off the total sum. His father helped him develop a personal budget for his spending each week, and he hopes to save enough that he can pay it off in a few chunks by graduation.
“Initially I was just going to use my card to buy groceries once a month, but I got into a situation where I was low on money, so I just started using it for everything,” says Ohrenberger. “I’d throw $100 at it a month, but that wasn’t doing anything when I’d go to the bar and swipe it.”
Student loan company Nellie Mae estimates that the average undergraduate student in the U.S. has $2,169 in credit card debt, and that over half of college seniors have four or more credit cards. The temptations to sign up are obvious. Bank of America’s Student Visa offers “Cool Deals” like $15 off every $100 dollar purchase at Urban Outfitters, or a 99 cent pizza with any purchase at Papa John’s. The card advertises “no co-signer required” in their bullet point list of benefits.
“It irks me the way these credit cards are marketed to young people,” says Carl Hubbard, a local attorney who founded the Zero Balance Foundation to encourage student fiscal responsibility and kick credit companies off campus. “They tell students, ‘You’ve made it. You’ve arrived. You need to have a credit card. Now take your friends out to lunch.’ They don’t have a job or a career plan, and many end up leaving school underwater.”
A recent Student Visa magazine advertisement read, “Free from parental rule at last. Now all you need is money. Cha-Ching!” For many young people, college is the first taste of true freedom, and the ability to manage one’s time and money without the daily watchful eye of a guardian. As confidently independent as they feel, students are generally without a significant income source of their own, making them a vulnerable prime target to a lender searching for suckers.
Credit card companies make money when borrowers don’t pay off their bill in full every month. Interest generally hovers around 20 percent, and those who pay it are giving their money away for the right to have previously spent money that wasn’t theirs. Fortunately for today’s college students in Charleston, both the Citadel and CofC have taken note of predatory lenders, and taken measures to stop it on campus.
“We put up significant roadblocks to credit card companies,” says CofC Dean of Students Jeri Cabot. “They can’t give away any promotional items to attract students, and disclosures about how they handle debt have to be printed on the forms as large as the other type face used in the solicitation.” Cabot says that companies are limited to visiting once a year outside the Stern Student Center, and that cards are not given to students with no gross income without the signature of a parent or guardian. Cards solicited on campus are also limited to $500 credit.
At the Citadel, South Carolina Federal Credit Union won a lowest bidder contract to place an ATM machine on their campus, allowing them to set up on campus once a semester and offer bank accounts, including credit cards. There is also an open bulletin board where anyone, including credit companies, can post.
If a student becomes deeply embroiled in debt, CofC operates an attorney assistance program, where local lawyers donate their time to students in need. Carl Hubbard is a participating attorney, and he points out that credit reports show up in job interviews, and can overshadow glowing resumes and excellent GPAs.
“If you’re applying for a job at a bank, and they see you’ve got a couple cards and you’re just paying the minimum payments, why are they going to hire you to manage someone else’s money?” asks Hubbard. “Your credit report will be the most important personal identification badge you will ever wear.”
When a college student gets in trouble with credit, they’re likely either going to beg their parents to bail them out or they’re going to ignore the problem, wrecking their credit report in the process. For those graduating with hefty student loans, the financial burden is already great, and is grossly exacerbated by credit card debt’s exorbitant interest rates. Many end up acquiring more cards, using those to pay off the old ones, and their debt hole only grows deeper.
Every incoming freshman will likely encounter an opportunity to get a credit card, and it’s important that they inform themselves before making any purchases they can’t afford. “A majority of students don’t know what they’re doing when they sign up,” says Hubbard. “They’re getting a free lunch and don’t think, ‘How can this hurt me?’” There are no statistics on how many students leave college due to debt accumulation, forced to work several jobs to pay it off, but many schools estimate the number is larger than those who leave for academic reasons.
The illusion of free money is a strong temptation. A free meal can quickly turn into a few drinks after class, a cute skirt on the way home, and a sweet new sorority blanket on eBay back at the house. Before you know it, you’re paying off that pita for the next five years.
If you’re considering getting a credit card, consider this first:
•“Saving by spending” is a purely American phenomenon, and it’s a false truth. You do not “save” when you make a purchase.
•Credit is a loan. If you don’t pay it back within a month, you begin giving your money away to a major corporation by paying interest. Don’t spend money you don’t already have in an account.
•The people pitching you a card don’t care about you. They are independent contractors hired by the company, and they make a commission on each application form that gets filled out.
•When you fill out a form with name, birthday, and Social Security number, you are giving your identity to a person you don’t know.
•That free meal would have cost you about 5 bucks. Cash.
•Create a budget. Write down everything you spend money on, and break it down at the end of the week. Should you be spending $150 on booze and only $60 on food? Knowing where your money is going puts things in perspective, and can help you avoid debt, or save to get out of it.
•If you’re already in debt, contact CofC’s attorney assistance program. They may be able to place a hold on your interest accumulation, helping you pay it off quickly.