First-time users should be aware of plastic perils

College ushers in a more independent lifestyle for students who are accustomed to relying on parents. This independence can be personal and, in many cases, financial.

Many students apply for their first credit card when coming to college. However, they sometimes don’t know what they’re signing up for.

“Unfortunately, the average Kent graduate graduates with about $4,100 in credit card debt and $23,500 in student loan debt,” finance professor Ron Stolle said. “That’s the average Kent student, and those types of debt balances put the student behind the 8-ball right from the start.”

Stolle said he is trying to introduce the concept of credit cards and student loan debt to freshmen in first-year experience courses.

“We as a nation typically don’t save,” Stolle said. “Forty-three percent of Americans spend more than they earn on a regular basis, and you can’t do that and survive.”

Stolle said that, in order to use a credit card safely, students need to differentiate needs from wants, know the consequences of screwing up and understand their consumer rights.

Needs versus wants

Stolle said a major problem for students is that they use their credit cards for all purchases rather than just necessary ones.

He said students should use credit cards wisely.

“What it involves and entails is having some discipline and understanding (that) when you buy something on credit, you’re going to have to pay for it,” he said.

Junior chemistry major Adrianne Harris said she’s stayed out of trouble because she’s disciplined in her spending.

“I work for everything I have,” Harris said, “so I sort of have a sense of money rather than spend, spend, spend.”Ken Anderson, operations manager for the Kent State University Bookstore, waited until he was almost 40 years old to get his first credit card because he didn’t want to get into debt. He said credit cards are nice to have, but they shouldn’t be used frivolously.

“They’re a good tool to have as a backup,” Anderson said, “but I would encourage people not to do, ‘I have this card, I can spend beaucoup bucks on something I want and really not need.'”

Learning about the consequences

Kelly Paton, program coordinator for the Kent location of Consumer Credit Counseling Service, said students should know the terms of a credit card agreement before applying for one.

“A lot of times, you get to a point where the amount that you owe is beyond what you can afford to pay (in) minimum payments each month,” Paton said. “That starts a cycle on over-limit fees, late fees and collections that, in turn, can be really damaging to your credit score.”

She said researching terms such as “fixed rates” and “variable rates” can be helpful when it comes to avoiding debt.

Paton also said students shouldn’t get enamored with free gifts.

“With a lot of first-year students coming to campus, they’ll apply just for the freebie and not understand what the terms of the account are until it’s too late,” Paton said.

Senior psychology major Doug Dennis said he has stayed out of debt by paying attention to others’ bad examples.

“I don’t have any debt, thank God,” Dennis said, “but my brother has quite a lot, and some people around me have their fair share and some people’s families have their fair share. I’m surrounded with bad examples.”

Understanding consumer rights

When it comes to owning a credit card, students have a number of rights. The Federal Trade Commission’s Web site comes packed with information about consumer rights, and the Fair Credit Billing Act highlights the right of consumers to dispute billing statements.

The Fair Credit Billing Act says consumers can dispute billing statements when:

• charges or electronic fund transfers are incorrectly identified or show the wrong date or amount.

• there are math errors.

• payments, credits or electronic fund transfers are not posted properly.

• creditors fail to send bills to your current address – provided they receive your change of address, in writing, at least 20 days before the billing period ends.

In addition to the FCBA, The Fair Debt Collection Act sets limitations on how creditors can contact consumers about getting payments.

Debt collectors:

• may contact you only between 8 a.m. and 9 p.m.

• may not contact you at work if they know your employer disapproves.

• may not harass, oppress or abuse you.

• must identify themselves to you on the phone.

• must stop contacting you if you ask them to do so in writing.

Students can also opt out if an interest rate increases, which allows customers the option to cancel their account and continue to pay off the remaining debt with the current rate. But opting out often means customers can’t continue to use the card.

Paton said students should start thinking about credit now before graduation sneaks up on them.

“There are a lot of different things that hit right after graduation that pile up real quick.” Paton said. “We see a lot of people with the backlash of college.”

New sheriff in town

The Credit Card Accountability, Responsibility and Disclosure Act requires people under the age of 21 to send credit card companies proof of the ability to pay for credit card debt or a have a co-signer before credit can be issued.

In addition, the law includes:

• restrictions on rate increases.

• limits on penalty rates.

• limits on fees.

• reasonable payment

requirements.

Terms to learn

Paton advises students to learn the jargon behind credit cards before applying for them.

Some common terms to learn are:

• Fixed rate: A rate that, at least in theory, stays the same for the whole time you have the card.

• Teaser/introductory rate: The low rate that credit card companies use to draw in customers but rarely lasts for long.

• Grace period: The amount of time between when you spend money and when you start paying interest on it.

• Variable rate: A rate that changes depending on the national interest rates. It is subject to change often.

Source: Solveyourproblems.com

Contact student finance reporter Anthony Holloway at [email protected].