The beginning of the academic year always brings the deluge of credit card offers to college campuses. At one time in recent history, card lenders took advantage of our nation’s college-bound youth, issuing cards to young adults enthusiastically. In 2009, legislation was passed that many of those lender tactics illegal. But even with those changes, an alarming number of college students are burdened with credit card rates that rank among the highest in the nation.
Credit Card Rates and CARD
In May of 2009, the CARD (Credit Card Accountability Responsibility and Disclosure) act was passed by the US Congressional house, putting limits on the methods credit lenders could use when offering and issuing credit cards to all Americans, including college students. While this provided some relief regarding credit card rates, the overwhelming problem was not completely eliminated.
- Before 2009, students could apply for and obtain pre-approved cards when reaching the age of eighteen years. Currently, pre-approved cards cannot legally be offered to persons under the age of twenty-one. Before that time, a student must supply income proof or obtain the signature of co-signer over the age of 21.
- Before 2009, card lenders flood campuses with representatives giving away pens and even Frisbees in order to sway naïve youth to sign up for their particular card. This practice is now illegal. Lenders have now initiated campaigns that offer some type of reward when charging purchases on cards.
While the legislation provided a partial solution, many college students are falling prey to the lure of over-spending on credit cards and are left with debts at outrageously high credit card rates.
Students and APRs
The majority of students do not have a credit history or established score when starting their academic life. Credit card lenders view them as high-risk individuals and are more likely to issue cards with the highest APRs. The average comes in at about 21% for a student managing a first card account. This ranks the credit card rates for the typical college youth at just under that charged for a retail card at 23%. There are some lenders who feature lower APRs in card packages that are geared towards students, but the requirements are so stringent, few qualify.
For any consumer, including college students, the golden rule of wise credit management is to only charge an amount that can be paid off in full each month on time. Sadly, few American consumers follow this sage advice. The majority of people fall for the lure of over-charging and then only meet the minimum payment. For an individual with a credit card rate of 21.4% and a $1000 balance, this habit means you will re-pay almost $2000 and it will take close to eight years to satisfy the debt completely.
Benefits of Credit Cards for Students
Let’s face facts: everyone needs to establish a credit history. Unfortunately, a young adult entering college may not be able to avoid higher credit card rates. But by practicing healthy credit habits, a good credit history can be achieved and enable them to have a bright financial future on graduation. By using one single card throughout their college career, making minimal charges and paying the debt in full and on time on a monthly basis, students will have the foundation needed to move forward in a healthy manner. They can then start their occupational life with the ability to rent a home, take out a mortgage or purchase a vehicle without encountering high deposits or interest rates.
What to Do if You Already Have Debt
Paying off the debt with high credit card rates can seem like an impossible task. When already saddled with card debt at high APRs, the process could be lengthy and quite expensive. The payments made are generally applied toward the interest accrued rather than the principal, which then accrues interest again. Don’t lose hope, though – by reducing the interest, consumers may be able to save a significant amount of money as well as time when becoming free of debt.
- Balance Transfer. With a good or excellent credit history, many companies offer lower and even no-interest rates when transferring card balances. Be aware, there may be a fee involved, but it is often worth it when compared to paying high credit card rates.
- Personal Loan. While personal loans are not issued with a zero interest, they are less complex and generally lower interest than credit card debt. Payments are fixed and interest rates are set. This can offer a great deal of relief for those struggling to pay off charges incurred during college years. There may be some evaluation of educational level and income potential when an individual is considered for personal loans, rather than relying solely on the person’s credit history and score. This can be a great option for those who may have missed or been late on payments, but have earned high-paying college degrees.