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Getting Control Of Debt In Your Teens and 20s

The move to put credit in the hands of teenagers began in earnest about 25 years ago when solicitations to college freshmen became the norm. Today, credit issuers are marketing low-limit cards ($300 to $1,000) to parents for kids as young as 15.

How easy credit can become problem credit

According to Consolidated Credit Counseling Services, 78 percent of college students had at least one credit card. Nearly 40 percent of freshman students sign up for credit cards and almost 20 percent get them in high school.

Of the 78 percent who have credit cards:

• 32 percent have four or more cards
• Average number of cards = three
• Average credit card debt = $2,748
• 13 percent have credit debt between $3,000-$7,000
• 9 percent have credit card debt greater than $7,000
And maybe the most sobering fact of all-8.7 percent of bankruptcies are from people under 25 years of age.

In 2005, a Time magazine survey showed that more than half of American students owed money when they finished college. Of that number, two-thirds said they owed over $10,000, a quarter said they owed over $30,000, and 5 percent owed over $100,000.

The magazine pointed to “the new demographic of Twisters-young adults who live off their parents, bounce from job to job and hop from mate to mate. The years from 18 until 25 and even beyond have become a distinct and separate life stage.”

Over a third reported that they were just getting started on finding the job or career they want. According to Nellie Mae, a student lender, undergraduate students’ use of credit is at an all-time high. The agency’s most recent analysis of student credit card debt showed that for students who applied for credit-based loans with Nellie Mae in the calendar year 2001, 83 percent of undergraduate students attending four-year institutions (aged 18-24) had at least one credit card. This was is up from 67 percent of undergraduates holding a card in 1998, and 78 percent in 2000. Furthermore, 47 percent of students with credit cards had four or more cards, up from 27 percent in 1998 and 32 percent in 2000.

Credit cards are intended to be used by people with income, and most working students don’t make the kind of income to support credit card use.
The best way to deal with the dangers of credit is to teach them about the basics of money early on-well before their teens.

Credit scores and your career

Credit scores aren’t merely for people over 30. As credit begins going into the hands of younger people, borrowers are going to be ranked earlier than ever. That means a high school student needs to assume that they are building a credit history the moment they borrow their first dollar.

The credit card companies know what they’re doing. Roughly three in four students keep the rirst credit card they receive or 15 years or longer.
Credit cards can have their place in a college student’s life. They can be useful for emergencies, help the student learn about the proper use of credit, and establish a credit history (if the card is in their name). To help your child make the most appropriate use of credit cards during their school years-and later-here are some tips.

Educate them about credit cards. According to CCCS, only 44 percent of students understand the word “budget”, only 34 percent understand the concept of buying on credit, and a meager 8 percent understand compound interest. And like many adults, they don’t grasp the often-expensive issues of grace periods, late payments, finance charges and minimum payments. Students also need to learn about the importance of building and keeping a good credit history it affects their ability to get future loans and even their ability to get a job.

Have a spending plan. Keeping a budget for the school year can help your student think more carefully before spending, and better understand how a credit card fits in the picture.

Keep only one card. Even if the credit limit for a card newly issued to a student is relatively small, a student with a handful of cards can run up a lot of debt in a hurry. Credit limits tend to climb depending on age and the student’s credit history, so the student might be smart to ask for a low credit limit initially and keep it there.

Watch the teaser rates. Select a card based on its full rate, not a teaser rate. Some recent cards for college students offered rates at around 8 percent. but jumped to 16 to 17 percent within a few months. Also look for cards with low or no annual fees, and reasonable late payment, grace period, and billing policies.

Practice. Consider having your child start out using your credit card so you can keep tabs on the charges and discuss Inappropriate charges. Only after they show responsibility should they get their own card. Another way is to start them out with a debit card which deducts charges from their checking account, or a secured card, which allows them only to charge up to what they have deposited in the card’s account.

Don’t co-sign their card. When it’s time for your student to get a card on their own, don’t co-sign the card. As the primary borrower, they can run up charges without you being able to control their use of the card. and you’ll be legally responsible to pay for the debt late fees, and so on if they get in over their heads. In short you could harm your own credit rating.

Keep it paid off or pay more than the minimum. This is good advice for any credit card user, but especially for low-income students who can ill afford to get behind. If they keep their purchases small or only for emergencies, they’ll probably be okay. Also be sure they understand the high cost of paying only the minimum payment, which runs up interest charges over time.

Make them read all correspondence. Those occasional envelopes containing the sheets of paper with really small type contain news about fees, shorter grace periods, and other moves that cost cardholders money. Students need to understand when their costs are going up like anyone else.


On average, students owe more than $20,000 at graduation, and those numbers are so staggering that it may seem they’ll never be paid off. Yet there should be a game plan for paving ii off.

Start with highest-rate debt first. That typically means credit cards. Students shouldn’t ignore their student loans, but they should pay the minimum on low-rate debt first and concentrate on getting the expensive loans out of the way first.

Pay a little extra on other loans if you can. Some car loans charge a prepayment penalty (do what you can to avoid prepayment penalties). If you’re paying for depreciating assets, just get the loans extinguished as quickly as possible.

Start an emergency fund. Last hired, first fired. Graduates should try to sock away at least three months of expenses in a savings or money market account in case they lose their jobs.

Start saving for retirement. If college graduates have access to matching 401(k)s. then it makes sense to start putting away 10 percent of their incomes for retirement. It’s a good habit to get into.
Attack the student loans. See if you can pay off a little more than the minimum each month. Lenders are fairly understanding when you ask for lower-rate or consolidation solutions.

Always assume that someone-a future employer, your first home lender, your first landlord-is going to be watching the way you spend money .


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