Credit cards turn into campus nightmares
By Danielle Dellorto
The Columbia Chronicle (Columbia College)
01/06/2003

(U-WIRE) CHICAGO — Bills, Bills, Bills. From credit cards to student loans, some students can't say no to charging and are now buried in debt.

Twenty-year-old Ashley Jackson, a Columbia College junior majoring in broadcast journalism, said she already feels like she is in way over her head. Jackson said she charges everything from food to clothes and books. Jackson has three credit cards with balances totaling more than $4,000, in addition to almost $20,000 in student loans.

"Some days I think I will never be able to pay off my debt," Jackson said. "I don't even know where to start to get ahead."

And Jackson is not the only one. College students in the Midwest carry the highest average credit card balance ($2,478), according to a study conducted in 2001 by student loan company Nellie Mae.

The most common attempt people make to lower credit card debt is transferring their balances from one card to another, experts report.

Columbia student Shawna Wolff chose this option about seven months ago.

"My debt got overwhelming," Wolff said. "I thought if I could combine all of it and pay all of it in on one bill; it would be a lot easier."

Wolff, who had seven credit cards before consolidating them, charged items such as clothes, books, Christmas presents and vacations.

By transferring her balances onto one card, she now has only one bill at a lower interest rate than most of her other cards had.

"It is a good choice for me," Wolff said. "I choose to have the company take the monthly bill right out of my checking account every month, so I know it is getting paid and my $5,000 debt will be paid off in 24 months."

Money managing expert, Rudy Cavazos, said transferring credit card balances to one card can be a great option for students, if it is done correctly. Cavazos is the director of Corporate and Media Relations at Money Management International, which is the largest full-service, nonprofit credit counseling organization in the country.

Cavazos said the most important thing students need to do when deciding whether to transfer the balances from one credit card to another card is to understand the details in the disclosure statement.

First find out how long the introduction period is for the new card. If they are offering zero percent-you want to know for how long. The longer, the better.

Also look at what the interest rate will be once the introduction period is over.

Cavazos suggested finding a card that offers a low, fixed interest rate.

"Most consumers will not pay in full the balances that they transferred over to the card with the low introductory rate," Cavazos said. "People just don't do it. It's a great idea, starts off as a great plan but in the end, consumers just don't fulfill their commitment."

Student loan company Nellie Mae affirmed this statement. According to their data, most students, by their graduation day, have more than doubled their debt from when they entered college.

Another important thing to look for in the disclosure is the grace period on the card. Cavazos suggests picking a card with a minimum grace period of 20 days but said a card with a 25 day grace period is a great deal.

Finally, pick a card that does not charge to transfer balances.

"The competition for credit card customers is stiff, it's fierce," Cavazos added. "So there are plenty of credit card issuers that can offer you one that will not charge you for transferring your balances over to their card."

Debt consolidation is also an option but is harder for students to obtain.

"Consolidating your cards will be more difficult because, one, you are a student and, two, you probably don't have a substantial annual income to qualify for a bill consolidation loan," Cavazos said. "You have so many factors already against you."

According to Nellie Mae, nearly 45 percent of students have four or more credit cards by their second year in college.

The number one thing Cavazos said to remember if you do obtain a bill consolidation loan is to get rid of your credit cards.

"Tear them up and close those credit card accounts because too many people forget to do that and end up in the same situation nine months down the road," Cavazos said.

Paying off student loans on credit cards is a serious mistake — and a sign that credit trouble is on the way.

"It is a serious red flag that you need some help if you are paying off loans on credit cards," Cavazos said. "You don't want to use your credit card to pay those types of things."

He said when you are using your credit card to pay normal household expenses such a groceries and utility bills; it is a bad thing too.

Another sign of trouble is habitually making late payments to creditors or borrowing from one credit card through cash advances to pay off another credit card.

"There are many students out there that have questions regarding money and credit," Cavazos said. "These issues were never really covered in school so there are a lot of misconceptions. There is nothing wrong with calling for some help."

Cavazos said filing for bankruptcy is the "10-year mistake" and bankruptcy should be the absolute last option.

"The reality is, it ruins your chances of buying a car or a home for ten years and only takes away your credit card debt, not your student loans," Cavazos said.

According to Cavazos, student loans are nondischargeable under any bankruptcy filing.

"You need to definitely take a look at your personal finances today. Make a plan to get them in order and talk to a counselor — it's free." Cavazos said. "You just need to do something before it gets too out of hand."

Visit www.moneymanagement.org for free online counseling or call (866) 889-9347 to talk to a credit counselor 24 hours a day.

Copyright ©2003 The Columbia Chronicle via UWire

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