| Students often are still paying for college credit-card purchases 10 years later! In June of 2001 the United States General Accounting Office (USGA) did a study and a report on college students' use of credit cards. The entire report (Report No. GAO-01-773) is available online at http://www.gao.gov/new.items/d01773.pdf. Here are some of the highlights from the report:
Students enjoy having credit cards because they are "cashless” transactions and are interest-free until the payment is due. They can shop by phone and on-line, and they can make travel arrangements. However this convenience may cause students to spend beyond their means.
Excessive credit card debt and late payments can ruin a student"s credit rating and make it more difficult and costlier to get credit later. Credit cards are actually high-interest loans in disguise.
Students who pay only the minimum balance each month may not understand the long-term effects of the interest rates. For example, a student with a credit card loan of $2,000 and an interest rate of 19% who pays back the loan at $40 per month will incur interest charges of $1,994 (added to the $2,000) by the time the loan is paid in full. At this rate, it would take 100 months, or over 8 years to pay back the loan:
Table 1: Minimum Repayment Schedule on a $2,000 Credit Card Loan at 19 Percent
| Monthly Minimum Payment Amount |
Number of Months to Pay |
Total Interest Payment |
Total Interest + Original Amount |
| $40 |
100 |
$1,994 |
$3,994 |
| 50 |
64 |
1,193 |
3,193 |
| 75 |
35 |
619 |
2,619 |
| 100 |
25 |
424 |
2,424 |
Source: Credit Card Minimum Payment Interest Calculator, Daniel C. Peterson, www.webwinder.com.
The average undergraduate with student loans graduated owing $19,400 in 1999.
According to the College Board (2003), nearly 80 percent of college students carried at least one credit card in 2000. The average balance on their cards was $1,600. (http://www.collegeboard.com/article/0,3341,5-28-0-9139,00.html)
Students typically overestimate their starting salaries and underestimate their living costs after graduation. More people in the age group from 25 to 34 file for bankruptcy than other age groups.
What you need to know about using credit cards 1:
THE INTEREST RATE: Sixty-five percent of all credit cardholders' incomes don't stretch as long as the month, so they carry and pay interest on credit card balances. With interest rates averaging 18.9%, shopping for a good rate can make all the difference. How the interest is calculated is also important. Look for interest calculated on the adjusted balance; avoid those calculated on the previous balance.
THE ANNUAL FEE: Just about every bank charges for the "privilege" of using its card. The average fee is $17 for a card, but it is possible to find a bank that doesn't charge an annual fee.
THE GRACE PERIOD: There is usually a 25 to 30-day grace period between the day a purchase is charged and the day the interest meter starts ticking. Some cards have no grace period; some that had them are shortening or eliminating them; and all cards with grace periods scratch them if the balance is not paid in full each month.
THE TRANSACTION FEE: This fee takes dead aim at the "free riders" who pay off balances before interest charges are incurred. A small fee is levied each time the card is used. Some card issuers charge customers this fee only if they pay their bill in full each month.
THE ADDITIONAL FEES: The "hidden" charges - such as penalties for late payments (from $5 to $25) or for exceeding credit limits (usually $10 to $15) - can really add up.
READ THE FINE PRINT: Information on these points is essential to an informed choice, and the law requires that customers get it. Card issuers must prominently disclose information on interest rates, annual fees, grace periods, transaction fees, and the name of the method used to compute the balance.
1 Carson-Newman College (2003). Carson-Newman College Handbook. Retrieved April 22, 2003 from http://www.cn.edu/studlife/handbook/credit.html | 
