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Feature: Teaching students to manage credit card debt

Oct. 3, 2006

There are certain things every college student needs — a carefree spring break in Cancun, those new black stilettos in that high-end shop's window, an expensive romantic dinner followed by a diamond necklace to get that special girl to fall for you. And these are just a few things students tell themselves they must have.

The bad thing about wanting to purchase expensive items is that students don't always have enough cash. But that doesn't stop a lot of folks. When cash isn't available, the next best thing for many students is a shiny, new credit card. Maybe they received it when they opened a new bank account. Or perhaps they signed up for their first credit card by being suckered in with the offer of a free pizza at Domino's or a free blanket from one of the many solicitors at Mizzou Arena.

"Students are an easy target and are easy to market to," said Mark Oleson, director of the Office for Financial Success and an assistant professor in the department of personal financial planning. "Students have a short-term outlook, and that's why they are an easy target. Anything can look appealing in short term. That free pizza with the credit card sounds appealing, but in the long run when it costs 60 bucks it's not that appealing."

Bad credit card usage is a common problem among college students. In 2004, students from the Northeast region of the United States had the lowest credit card balance, whereas students from the Midwest had the highest debt, according to Nellie Mae, a student loan provider based in Braintree, Mass. The statistic does not bode well for MU students.

"A lot of people think that a credit card is Satan dressed in plastic, but I think that it comes down to individual vulnerability," Oleson said. "If you're the type of person who knows that you'll use it and buy things that you can't afford, then a credit card is a mistake."

It is a well-known fact that having a credit card is the best way to build good credit, but is also a way to hurt credit. If a student wants to raise his or her credit score via credit card, there is a safer way to do so than buying things on a whim when the urge to shop hits, Oleson said.

First, a student can have a club or gym membership with monthly fees billed to his or her card. After the student gives the club his or her card number, he or she can then shred the card. Not only will this build a good score because the student is spending money and paying it off, but it also eliminates the temptation to spend money that the student does not have.

Students can also limit themselves to only buying certain items with the card.

Students can designate it as a card solely for purchasing gasoline or books, although it might be hard to resist temptation to stray from the designated items.

The best thing that all credit card owners can do is to call their credit card company and have their credit limit lowered, Oleson said. Having a lower credit limit will lower the owner's potential liability.

"Students have to prioritize what they're spending. If you're debating on buying books or a spring-break trip, then you have to think about what is most beneficial to you," said Nicole Crimaldi, a credit manager at Wells Fargo in Chicago. "Students think that it's OK to spend more because when they graduate they'll get a good job and be able to pay it back. But it just doesn't always happen like that."

Many companies assume that students will make mistakes and spend too much. But they think that's OK because students have earning potential and parents that will bail them out, so they view the students as a good risk, Oleson said.

But it doesn't always work out this way. Some students like senior Lindsey Cathey are in serious credit card debt. Cathey has approximately $4,000 worth of debt. She got her first credit card when she was 18 and said that she started accumulating debt about six months later. She now has five credit cards.

"Oh crap. How am I going to get out of this and not tell my parents?" Cathey recalls thinking when she first realized that she was in debt. She still has yet to tell her parents about her problem, and she plans on never telling them, "unless I absolutely have to," she said. "My plan is to get enough money in my bank account so that I can still live, and then I will cut up my cards," Cathey said. She has never sought outside help in managing her debt.

But not every student who succumbs to debt has a horror story.

Graduate Student Dahlia Falk received her first credit card when she was 16. Her parents gave it to her to teach financial responsibility. They paid for it when she was in high school, but that responsibility shifted when she reached college. The weight of making payments on her card was thrust onto her shoulders. She accumulated $3,000 worth of debt before she realized that she needed to do something to eradicate the problem. She also had two credit cards, which contributed to her debt.

"I had an 18 percent interest rate on one of the cards, and I couldn't get it paid off. My other card offered checks, so I used a check [from that card] to pay off the debt on my other card," Falk said.

She kept paying off the balance on the card with the lesser interest rate, until she had managed to get her debt problem under control.

"Credit cards are for necessities and emergencies. I wouldn't carry one because you'll get tempted to spend it on stuff," Falk said.

Despite the danger of debt, Oleson said financially responsible students can successfully manage a credit card.

"If a student is aware of all of the pitfalls, catches and all of the things that they're expected to do wrong, and they're a responsible person who wouldn't abuse it, then there's nothing wrong with a student having a credit card," he said.

The obvious key to staying out of debt is to not spend any money. But since there are certain cost-of-living expenses, not spending money altogether isn't a practical option. Students need to be aware of the rules, interest rates, fees and the deadlines that go along with their bills and credit cards.

The Office of Financial Success offers classes and workshops about credit that students can take to learn how to better manage their finances. There is a class geared toward freshmen, and another that is aimed at helping seniors for when they leave college.

Not only do adults work at the office, but students who are in a financial degree program offer their help as well.

If students feel that they need help managing their spending, then they can visit the Office for Financial Success at 61 Stanley Hall or contact the office at (573) 882-2173.

"I wonder if the biggest financial pitfall is even a financial issue at all," Oleson said. "It's something like pride that is going to prevent someone from getting the financial assistance that they need. Having another student to talk to about their financial situation makes them feel a little more comfortable than talking to somebody else, because they know that they're talking to someone who can relate to them."

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