Budgeting and Credit Card Survival Tips for College Students

With an average credit card debt of $3,000, graduating college students appear to be following the current consumer trend towards deeper debt, according to a national student loan survey conducted by Nellie Mae Corp.

The report stated that in 2002, students who used credit cards to finance part of their undergraduate education left college with a $3,400 credit card balance, compared to an average balance of $1,600 for most students. The study showed that those who used credit cards to pay for part of their education had an average undergraduate education loan debt of $21,200, almost 20 percent higher than average undergraduate education loan debt of $17,700 for those who did not rely on credit cards. To view more on this study visit www.nelliemae.com.

Given the increase of student debt, Consumer Credit Counseling Service (CCCS) of South Texas offers college students money management survival tips for maneuvering through the decision-making maze when considering the use of credit cards. "Credit cards can be helpful for students who can afford them and who use them wisely, such as in emergency situations," said Kim Womack, director of education and community information. "What's important when using credit is understanding how best to manage credit and debt. And it's usually a good idea to consult parents or guardians before signing up for or using a credit card for large debts. They are the often the ones who end up paying the bills when students can't."

By applying the tips below through college years and beyond, students can gain insight into managing their finances more effectively.

Before you sign... keep this in mind: Credit card purchases are loans to pay for products and services. When signing for a credit card, the customer agrees to repay the loan(s) according to the creditor's rules. A customer's record of payment is reported to the three major credit bureaus and this payment history becomes the basis for determining credit scores. Unless students have income to pay their debts on time, it's best to decline credit card offers and steer clear of negative credit profiles that will cost them in the future.

Is that "free gift" really free? A 30-day free Internet account or free tee-shirt or cap may not be a bargain if you have to sign up for a credit card with an annual fee, monthly fees and high interest rates. Solicitations like these can lead to multiple credit card accounts that can easily overextend a college student's budget.

Know the difference between a credit card and debit card: While both may carry the VISA or MasterCard logos, they're considerably different. With a credit card, customers borrow the money from a third party to buy now and pay later. A debit card transaction removes funds directly from customers' bank accounts, so they buy now and pay now. Students can avoid mounting debt and stress by not spending money they don't have and can't afford to repay immediately.

Find the best rate - credit cards are not created equal: If credit card use is necessary and a student can afford credit card payments, they should shop around for the best interest rates. Read all promotional offers and cardholder agreements carefully to understand the interest rate and penalties. For example, a zero percent interest rate during an introductory period may easily rise as high as 20 percent or more, once the period ends. Visit Websites such as www.bankrate.com and www.cardweb.com to compare rates.

Know the fees: Be careful to review whether an annual fee, monthly fees and penalty fees (late and over-limit) are associated with a card account. If an account has a high balance, additional fees could result in balances beyond the allowable limit for the card. This will result in penalty fees being added until the account is brought within spending limits. Be sure to pay credit card bills on time (within the grace period) and apply extra payments to reduce the debt amount.

Be selective with purchases and keep a low debt level: Pay off balances quickly and pay cash as often as possible. Keep the number of credit cards and purchases to a minimum.

Avoid becoming a victim of identity theft: Students should obtain their credit reports at least once a year to verify that the information reported is accurate. Avoid exposing credit cards, social security numbers and other personal information to others. If a credit card is lost or stolen, be sure to report it to the credit card company right away and ask for a written list of the latest charges to verify authorized purchases. Unauthorized charges should be disputed in writing.

Consult trained credit counselors to learn more about money management: It's never too early to learn how to avoid money management and credit problems. Be sure to contact a reputable credit counseling service, such as member agencies of the National Foundation for Credit Counseling (NFCC).

Parents should expect their college students to be solicited for credit and should caution them about the dangers and responsibilities of credit card use, added Womack. "Do what you can to discourage them from applying and keep the lines of communication open. Students receive a great education in college, but learn important life lessons from their parents," said Womack. "Help them avoid some of the same credit mistakes you've made in the past."

CCCS of South Texas is a nonprofit, community service organization that provides confidential counseling, guidance, debt repayment services, and educational programs. CCCS is a United Way agency and a member of the National Foundation for Credit Counseling. To schedule an appointment, call 800-333-4357 or visit their Website at http://www.cccsstx.org