- The Washington Times - Wednesday, February 14, 2001

The number of students with credit cards has risen to 78 percent from 67 percent two years ago, and average credit-card debt per person has risen to $2,748 from $1,879, according to a study released yesterday.

Nellie Mae, the private-loan provider that conducted the study, analyzed its student-loan applicants' credit-card habits, and found that nearly one in four students have debts of more than $3,000. Nearly 10 percent owe creditors more than $7,000.

"The general economy in the last five to 10 years has meant that money was readily available. People have more money than they ever have had before," said Nina Prikazsky, Nellie Mae's vice president of operations. "It gives them the idea that they will be able to pay off their debts easily, because they will always have this money. But with the economy slowing down, people, in general, have to be more careful."

But the false sense of security credit cards bring can make for a harsh wake-up call from debt collectors later, financial groups say.

What inexperienced customers don't know, says Ed Moore, president of Edelman Financial Services, is that credit-card issuers depend on them to make money.

"Alcohol companies are now saying friends don't let friends drive drunk, but it's a disincentive for credit-card companies to have smart customers. As long as they don't default, that's the perfect person, those who pay off a few thousand dollars over a period of a few years," Mr. Moore said.

Credit-card companies say they are working to ensure students have a responsible idea of how to use their newly issued credit cards.

Diana Don, a spokeswoman at CapitalOne, says the company has teamed up with Myvesta.org, a debt-counseling Web site, and also the Jump Start Coalition for Financial Literacy, a D.C.-based organization dedicated to teaching children at a young age about money management. She said that first-time card holders are given a credit limit of anywhere from $200 to $2,000.

"It depends on what their credit quality looks like," she said.

Jeff Unkle, a spokesman with First USA says they are not a huge marketer of credit cards to students, and that any marketing they do is in a partnership with a college or university. He also said that literature on how to handle credit cards properly is handed to every student that fills out a credit-card application.

"I think students respond well to it," he said about the literature. "Ninety-five percent of students pay their bills on time, just like our overall portfolio pays them on time." Fist USA issues students cards that have limits between $500 and $1,000, Mr. Unkle said.

But Miss Prikazsky said that students need to be made aware that paying just the minimum balance per month per card is not enough to get out of debt.

"You may be able to make a $40 minimum payment, but the balance may accrue interest at a rate that'll astound you," she said.

Mr. Moore says that there are some ways parents and students can avoid exorbitant credit-card bills.

He said students should try to keep the credit-card limits as low as possible.

"A limit between $500 and $1,000 is a good start, and provided your kid doesn't get 15 of them, that's effective."

And instead of using a credit card, Mr. Moore said, students should opt for a debit card, or a cash card, like Visa's Buxx system, which holds a predetermined limit of cash.

"Those are the antithesis of credit cards. If you're spending with money, and you run out of money, you can't buy anything anymore," he said. "With credit cards, people think: 'I have no money, but I'll get it anyway.' "

Credit-card companies and consumer groups agree that education is the No. 1 key to students' establishing credit responsibly, saying there should be more education programs in secondary schools and colleges. Parents also should play a role in helping their child understand money.

"Parents teach their kid how to drive, they should teach them how to handle money," Mr. Moore said, adding that parents with good spending habits have children who have good spending habits.

He also suggested that it would be helpful if after reading a pamphlet on credit management, students could sign something with the issuer that says they understand the responsibilities and potential risks credit cards bring, because they aren't very likely to educate themselves.

"There is a great deal of fantastic information out there about credit cards, but if you're 18, are you going to run over to check out the Web site? Probably not," he said.

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