To Charge or Not to Charge
Information courtesy of AES (www.AESmentor.org)

As you prepare to begin your college experience this fall, you and your family will be making decisions regarding your personal finance during the school year. You may be looking for a part-time job around campus to provide weekly pocket money to support your food and entertainment needs. You may be opening a new checking account to make withdrawals as needed during the academic year. Or, your parents may open a debit account for you with a predetermined balance to cover your daily financial needs. 

One of the options available to you and your parents is obtaining a student credit card for use in emergency situations. Most major credit card providers offer such cards. These cards can be useful in a crisis situation and they can be used to establish your first official line of credit history. 

Credit cards can be wonderful things to have in an emergency. “Emergency” as defined in Webster’s Dictionary is an unexpected, serious occurrence or situation urgently requiring prompt action.

Emergency situations may include airline tickets for an unexpected trip home, vehicle repairs, or fixing your PC if it decides to crash and burn while your developing your first term paper. However, leather pants, a set of 25 heavy metal CDs, and 17 pizzas (ordered over the course of a month) do not constitute emergencies. Credit cards are a convenient way to purchase things, sometimes too convenient. It can be those small, daily purchases like food, video rentals, and other incidentals that can add up over the course of a month. 

Credit cards in the hands of the inexperienced can create a monetary nightmare that’s almost impossible to escape. Here are some scary stats on how Americans manage their credit card debt:

The average U.S. household has 11 credit cards and pays $1,000 in interest yearly (just the interest folks!). The average interest rate on credit cards is 18 percent. The average credit card debt is $7,000 per household.

Here is an example of how interest rates affect a credit card balance when minimum monthly payments are made. 

So, charge $10,000 (it sounds like a huge amount of money, but you’d be surprised how quickly ten grand can accumulate) and make monthly payments of $250 and you end up paying over $24,000—taking over 28 years to pay it off.

There are all kinds of miscellaneous fees associated with credit cards you may not be aware of. Most student credit cards have a line of credit that ranges from $200 to $1,000. If you exceed your credit limit there is an additional fee. There is a finance charge every month if you don’t pay the full amount on your card. There is a late payment charge if you miss the due date. And, if you use your credit card for a cash advance, there is an additional fee just for charging for the cash.

If student credit card holders charged just a few things each month and paid off their bill each month, it wouldn’t be so dangerous. But typically, that is not what happens. Charges mount, finance (interest) charges kick in, and before you know it, not only will you have to manage repayment of any student loan debt you may have but you will also be responsible for paying off four years of pizza debt.