Credit Card Debt and College Student

Credit Card Debt and College Student Spending

Learning Budgeting at College

Students who have never lived away from home rarely understand how to budget their income. Whether their parents give them an allowance while away at college or they earn their spending cash by working at student jobs, learning how to manage finances is important. Students can learn the basics of managing their finances by taking entry level finance or accounting classes, no matter what their major is. These classes offer information on balancing accounts and credit to debt ratios.

Opening Bank Accounts

Some students may have their first bank accounts when they enter college. Opening an account may be necessary to deposit funds from student loans and grants. Paying tuition for the first time can be a real eye opener, especially if the student has never handled large amounts of money. Unfortunately, many students are also given the opportunity to open a credit card account or line of credit when they open their bank account. Students who don’t understand that overdrafts on their bank account come with fees may be unpleasantly surprised when they get their first bank statement.

Credit card debt and college student spending habits can become problematic if the student is consistently overdrawn on their checking or credit card accounts. Parents can help students understand these problems and advise them against opening these lines of credit. The banks may also close a student’s account if they are constantly overdrawn or have too many returned checks. A young adult who has their account closed for poor spending habits may have to wait five years before they are allowed to open another checking account at another financial institution.

Major Credit Card Accounts

The major credit card companies don’t miss a beat when it comes to advertising their services to college students each year. Textbooks are crammed with credit card applications, plastic bags from merchants are full of the applications and most likely, invitations to open an account can be found in the orientation folders given to the students during the first week of college.

Despite the growing amount of credit card debt in the United States, merchants are still willing to hedge a bet when offering credit cards to young people with no credit history. Many credit card companies will even offer secured credit cards to students in an effort to get their business.

Discover, American Express and many card issuers offering Visa and MasterCard credit cards all offer credit to young college students. If a student isn’t able to live up to their end of the deal and pay accounts on time, their credit rating will suffer and they may end up ruining their credit for the next decade. A bad credit rating can affect a person’s ability to land a good job, get a loan for a car or home, or even buy a diamond ring for that special someone.

Who is to Blame?

It is easy to point the finger at credit card companies who seem to be begging young college students to open credit card accounts. However, the students who knowingly open these accounts without the funds to pay them on time are equally as guilty. Parents may also shoulder part of the blame if they never explained debt and good spending habits with their children before they sent them off to college.

Get Spending Under Control

Students who find themselves in trouble and have limited income would be wise to seek out credit counseling before it is too late. Non-profit credit counseling services can help students learn proper budgeting techniques, help them identify spending problems and teach them the proper ways to use credit. Wishing the problem away won’t work since a credit report will follow you around forever.

Conclusion

Students that learn to understand the importance of their credit score and how to budget their finances before entering college will most likely fare better than their uneducated counterparts. Young adults can learn the proper handling of their finances from college courses or from their parents. If a student finds his or herself in trouble with their credit, they might want to consider seeking the help of a credit counselor to bring their budget under control again. Unfortunately, unless credit card companies stop targeting individuals with no real source of income, we can expect credit card debt to soar and the number of bankruptcies from young adults to increase.