Students making purchases far beyond their financial capabilities may wind up with unwanted expenses that they are unable to repay and find themselves in a world of debt.
Debt can come in many forms, such as automobile payments, student loans, mortgage payments, and medical bills. But the most common form of debt among college students comes from the use of credit cards.
Credit cards provide access to a seemingly endless amount of money with constant availability, satisfying instant gratification. Credit card companies usually set up shop on college campuses at the beginning of the semester and encourage students to apply.
These credit card companies prey on college students because most students lack the financial sense to manage the responsibility paying their credit card bills, and consequently they wind up paying high interest rates.
“I gave up on paying bills so my parents are paying everything,” said GCC student Sarina Shabandari, 18. “I quit my job to come to school, but I was still spending money while not working. If you know your parents are not going to pay your debt, then don’t spend!”
On the other had, while credit cards are a quick way to create long-lasting debt, they also have many advantages. Credit cards can help establish a good credit history, provide security during emergencies, and teach students lessons about financial responsibility and independence early on in adulthood.
College students face many expenses, such as the cost of tuition, books, materials, and sometimes rent payments. The majority of students have the support of one or both parents but may still turn to credit cards for socializing and shopping expenditures. Credit cards can be helpful and convenient if used wisely, but the consequences of misusing them is not understood by many college students.
“Inform yourself first and foremost because they’re [credit card companies] after the uninformed,” said Brian Begley, a GCC student. “Unfortunately this country is run on credit and students don’t have a grasp on how to use it until it’s almost too late.”
According to a report in USA Today, 78 percent of undergraduates have one credit card, while 32 percent have four, and the average credit card debt among undergraduates is $2,748.
When it gets out of hand, credit card debt can lead to bankruptcy. According to the American Bankruptcy Institute, nearly 6 percent of bankruptcies in 2001 were filed by people under the age of 25. This can be a problem for college students because claiming bankruptcy can affect one’s credit report for up to 10 years. The lack of basic financial knowledge of money management may contribute to the relationship of debt and college students.
GCC’s Community Services Education is a program that offers non-credit classes designed for students with personal interests in a particular skill or hobby. Instructor Phillip Kazanjian teaches a course about managing money and is the adviser of GCC’s Investors Club. Financial tips about saving, investing, retirement plans, and managing credit and debt are among the topics discussed.
“Credit has become so common that everyone is using it,” said Kazanjian. “Credit cards are like fire, if you don’t know how to use it, it can burn you.”
Attending college can be difficult and costly; the concept of credit cards is brand new to most students. Students living independently and those who are parents may come across the issue of debt more often.
Hasmik Kesheshian, a GCC student worker and full-time student who is a single mother of two daughters, understands the dangers of debt and has managed to remain debt free.
“It’s a lot of pressure on me but I never got a loan because I prefer to have money to buy things, and when you have credit debt, you end up spending more money in the long run.” Kesheshian explained the need to save to buy what one wants. “It’s a process of thinking,” said Kesheshian. “I don’t want to buy something with a payment and I don’t like the idea of interest rates.”
Excessive balances can lead to too much debt, resulting in one falling behind in making payments. If students can avoid this, credit cards can be a great value and a start to building a good credit standing.
“I learned the processes of how a credit card works through experience,” said Jay Sim, a 22-year-old student. “I was spending more than I was supposed to but I became independent and learned to manage my bills.”
“It’s not about money, but about peace of mind,” said Kazanjian. “If you are able to manage your money, then you have peace of mind.”
Top 10 Causes of Debt
Reduced income with the same expenses
Poor money management
Saving too little or not at all
No money communication skills
Banking on a windfall
Source: Credit Card Magazine at www.credticardsmagazine.com.