By Janet Cowell
For the Salisbury Post
This month, thousands of college students are going back to school in North Carolina. While they are excited for school to start, many are worried about increased costs for tuition, room and board.
College costs are increasing, students and parents are taking on more debt than ever before, and some families are taking a potentially dangerous path ó turning to credit cards to finance education. Last year, 84 percent of all college students had at least one credit card ó half of them had more than four ó and average balances are at a record high of $3,200.
While credit cards can be helpful in emergencies and to build a credit history, excessive credit card debt can derail long-term financial plans, including buying a car, purchasing a home or even getting a job.
Luckily, the federal Credit Card Act of 2009 has made significant changes to the industry that will be fully implemented by February 2010. Consumers aged 18-21 will be required to demonstrate adequate income, have a co-signer, or complete a financial literacy course to get a credit card.
Even with the new law, students who will get access to credit cards and all parents should do some homework before signing up for a card. Here are some tips:
– Shop around to compare interest rates. The card that looks the fanciest or offers the best free merchandise may not be the best credit card for you. Remember, a free T-shirt isn’t worth seven years of bad credit.
– Don’t fall for a tease. Some credit cards offer a low rate as an introductory offer, but after the first six months, the rate may jump significantly. The new credit card legislation has given consumers more advance notice before rate changes ń45 days before changes take effect ń but students and parents should still be careful.
– Learn how interest works. Most credit card companies do not charge interest on purchases if you pay the balance during the “grace period” ń the time between the purchase and the due date. But other companies may charge interest from the date of purchase. Select a card that offers a grace period to avoid paying more interest.
– Read the fine print. Be sure you know the terms of your card. Many credit cards charge fees for late payments, going over the credit limit, balance transfers, and for getting an ATMcash advance.
Once you’ve chosen a card, use it wisely:
– Pay it in full. Carrying a balance will cost dearly. Let’s say you buy $1,500 worth of school items on a credit card with a 19 percent interest rate. If you send only the minimum payment of $40 each month, it will take you over 13 years to pay back the debt, and you will end up paying an extra $1,916.48 in interest.
– Pay it on time. If your payment is even one day late, your credit card company may charge you a late fee, which is often $30 or more, and payments more than 30 days late may show up on your credit report. The new legislation makes card companies send statements three weeks before the due date, giving you ample time to pay. Also, be sure to find a card with a due date timed with your budget. If your payment is due before you get paid, you could have trouble getting your money to the company in time.
I want to learn more about students and parents’ experiences with debt. Recently, I’ve spent time with college students in Burlington, Charlotte, Fayetteville, High Point and Raleigh. I want to share their stories with lawmakers so we can ease the burden on students and parents.
You can help us develop a plan as well. If you have a story or a suggestion, please email it to me at studentdebt@nctreasurer.com.
If you need help making your credit card decisions, contact the Federal Reserve Board’s Division of Consumer Affairs at (202) 452-3693 or www.federalreserve.gov.
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Janet Cowell is the treasurer of North Carolina.