by Julia Marie Teti
The t-shirt might be free, but hold it! Did you check the interest rate? Most credit cards run an average of 17.5 percent. A massive use of credit cards has created nightmares for college students who end up charging everything from expensive dinners to exotic trips, suffocating themselves with monster debt.
“Credit cards are convenient, sometimes too convenient,” chemistry major Mark Conway-James said. ” They are also very accessible, more so than cash. With my spending habits, they’re dangerous,” Conway-James said.
The only way for students to avoid the trap is by fully understanding how their credit card works.
“If used carefully, credit cards are useful, but they can be dangerous,” Spanish and math major Abel Rodriguez said. “I personally never had problems spending too much.”
Besides knowing how to use them, students need to know when to use them. It is important to be able to define when you should use credit cards and when you really shouldn’t.
Melissa Shannon, a social work major, has a credit card but doesn’t have problems with spending excessively. Shannon pays off her bills as soon as they arrive. “But I do know a lot of people who have gotten into trouble with credit cards,” Shannon said.
Once a student begins to carry a balance each month, the card gets costly, especially if a student only pays the minimum for each payment cycle.
“They’ll get you into trouble, but they do come in handy,” psychology and education major Dawn Carroll said. To emphasize her point Carroll adds, “I over spend all the time.”
Of course cards carry an average of $250 to $1,000 credit limit, but making only the minimum payments would lead to seven years and over $800 in interest to pay off an average rate card.
Adding purchases, gaining extensive late fees and upping the interest only lengthens the time it will take to pay it back. Falling behind on payments leads to late fees of up to $25 per month. If you are late more than once in a four-to-six month period, the interest rate climbs.
“The companies target college students and make it easy to spend money,” sociology and criminal justice major John Wood said. “If you don’t pay the bill in time, the interest sky rockets.” Wood has had problems spending too much on a credit card.
Besides the debt of misusing a credit card, you can also end up with a bad credit rating, which makes it difficult to get a car loan, rent an apartment, a home loan or even a job.
Denise Cinclair, a business and management information systems major, feels that credit cards are “the doorway to bad credit.” Cinclair is another student who has had problems in spending too much on her credit card. “If I get into a jam,” Cinclair said, “I put it on my credit card.”
Each student should give his/herself a personal limit of two credit cards. When trouble starts to arrive, it’s easier to get help in the beginning before the situation gets way out of hand. If you miss payments or juggle between two cards, get assistance from a credit counselor, parent or financial adviser.
Taking on an “overdraft protection” feature-a line of credit offered to debit cardholders– can worsen the danger of this situation. An overdraft can help avoid returned check fees, but it can still be expensive, and often more so than credit cards.
Debit cardholders using overdraft pay more on overdraft than on interest, but this depends on the bank. Even if the overdraft is never used, there may still be an “activation” fee.
Amy Castaldi, an English/communications major, doesn’t have a credit card because of her fear of getting into debt. “Instead I have a debit card,” Castaldi said. She feels that this is a safer approach.
Besides the complications of an overdraft, several banks only allow the use of an overdraft for $100 increments. Overdrafting an account by only $10 indicates that the holder will have to pay interest on $100 from the line of credit. An overdraft of $101 can soon lead to a $200 loan, and from there the pattern continues.
All of this makes one question which one is more dangerous.
Sources: The Philadelphia Inquirer Diana McCabe and The New York Times Nancy Lloyd.
Info box: For Your Safety
Debit Cards: They look like credit cards, but they can turn out to be just as expensive
Prices for merchandise are higher:
Paying with a debit card can mean an added fee that can be compared to an ATM charge. This fact may not be posted in the store.
Beware of checking account holds:
The merchant can place a hold on your account when you usr a debit card to initiate a purchase before the amount of that purchase is verified. This can take days to clear and checks might even bounce, despite having the money in the account to cover the situation. Ex: Car rentals or filling the gas tank
Credit worthiness-Where’s the proof?
You might be able to make a reservation and pay a bill with a debit card, but some companies insist on a credit card with adequate available credit for security.
Less leverage in disputes with merchants:
When you use a credit card to order merchandise that never arrives or is defective, you can refuse to pay until the dispute is settled due to federal law protections. This is not so with debit cards because your money is transferred to the merchant immediately.
Theft: Less Protection
For a credit card or card number up to $50, federal law limits a consumer’s maximum liability against fraud. This is assuming that the bank is notified of the card loss or theft by the end of 60 days.
For a debit card, the federal law is that consumers report the theft or loss within two business days in order to limit the loss to no more than $50. After those two days, the potential loss rises to $500 and after 60 days, there is no cap. Banks can promise to extend to 60 days for the $50 cap, but this promise is not solid and can be retracted at any given moment.
Fees and Problems: Adding insult to injury
Reporting a debit card theft in time only applies to the money that the thief removes from your account. If the thief pushes your balance below your account’s minimum, or even causes checks to bounce, you can be hit with fees and suffer from damaged credit.
Source: The New York Times, Nancy Lloyd