Creating Debt-Free College Grads

Talking honestly with your college-bound teens can help them avoid credit card temptations

By U.S. Bankruptcy Court Judge John C. Ninfo

When your children go to college, they will be bombarded with credit card offers. There will be solicitation materials in bags from the bookstore, tables in the cafeteria and student union, constant e-mail solicitations, booths at sporting events, free offers of food and neat stuff in fliers under their doors or on their car windshields, an endless stream of offers in the mail and an unlimited number of other creative and appealing solicitations.

One of the most commonly used sales pitches is: “Sign up, get the free gift, and don’t even activate the card.” If your teen opens a number of these accounts, even if they are not activated, it will eventually have a negative effect on your child’s credit rating because credit issuers look at availability of other credit when they consider a request. Recently, I met a young high school teacher who found that out the hard way when his mortgage company wouldn’t close on the loan for his new house until he closed all the accounts he opened in college to get free stuff.

Credit card companies are so aggressive in soliciting college students because they know that most college students are hungry consumers, and that with their new freedom, many will want to do and acquire all that they see around them—even if they can’t afford it. And you won’t be there to tear them up or discourage them from signing up.

Credit card companies also know:
Many parents bail out their children when they abuse credit cards.  Approximately 60 percent of Americans don’t pay off their credit card balances every month, which sets an example for young people that credit card debt is acceptable.  Many college students will use their student loan money to pay off the credit card debt they incur for luxuries.  Many college students will use credit cards to buy things they can't afford because they want to maintain the lifestyle you provided for them at home.

It is not only the number of credit cards and the average credit card debt among college students that is increasing annually, but also the number and seriousness of the consequences that young people are experiencing.

The number of people under 25 who file bankruptcy has increased by 96 percent in the last 10 years because of the irresponsible use of credit cards. Other consequences include college students dropping out of school as a result of their debt problems and recent graduates paying higher car insurance rates and being turned down for graduate school, student loans, jobs, apartments and loans for cars and houses.

Once your children turn 18, the credit card industry will bombard them with offers. And your kids won’t need to prove they’re responsible before getting credit.

No matter your personal financial situation, you must help your children learn the financial rules of the road just like when you helped them earn their driver’s licenses. Consider following this plan of attack.

Step 1
Together, visit the CARE Program Web site, www.careprogram.us, where you and your child can read about developing a realistic college budget, view a do’s and don’ts handout and film produced by college students, and get reports from two college freshmen about their experiences with finances and credit cards at college.

Step 2
Work with your children to develop a budget for now, as they prepare for college, and for when they get to school. Encourage them to start paying close attention to what they spend their money on. Are they making six trips a week to Starbucks? What does that cost them?

Step 3
Open up a checking account for your children with debit cards that do not have overdraft protection. Teach them to use their debit accounts like checking accounts. Have them keep ledgers so that every time they use the debit cards they make corresponding entries. That way, they will actually be making spending decisions rather than simply using the debit cards as if they were credit cards.

Step 4
If your children are going to have credit cards at college for convenience or emergencies, make sure they only have one.  Research the available cards for the best rates, terms and other features, and suggest that they wrap it up in aluminum foil or something else when they put it in their wallet. That way, they will be forced to make a conscious spending decision when they reach for the credit card.

Emphasize that a credit card is not new or free money; it is just a different way to spend the money they already have.

Step 5
Encourage your children to carry cash, and not to use their debit or credit cards to purchase anything that they can eat or drink or that All the advice you need on college, careers and life!

Step 6
Warn your teens about the dangers of impulse buying on the Internet.

Step 7
Impress upon them that, if they ever take advantage of an offer to open new credit cards to get “free” stuff or store charges to get an initial discount, they should close the account when they pay the balance off the following month. Make them aware, however, that the customer service department will not make it easy for them to close the account, so they must be prepared to be proactive and do whatever it takes to get the accounts closed.

Step 8
If your children will need student loans to help them pay for school, make sure that they understand that you will work with them every semester to ensure that they borrow only what they really need, and that your expectation is that they will not use student loan money to do or buy things that are not within the budget that you have developed with them.

Step 9
Discuss with your teens the fact that they are going to have to live within their budgets and make spending decisions when they are at college. They may not be able to do and buy everything that some of their wealthier friends will be doing and buying, and they may not have the same lifestyle you provided for them at home before you had to pay their tuition.

If you follow these steps with your college-bound children, they will know that you care, and that their financial future is just as important as their academic future.

BEST Budget BETs
• Don’t choose a campus meal plan that exceeds your teen’s needs.
• Research the best phone plan while they’re in college, whether that be a cell phone, regular phone, calling card or         campus plan.
• Suggest that your teen have only one credit card, and that they avoid using it except for in emergencies.
• Encourage them to pay their credit card balance off at the end of every month.
• Discourage impulse buying on the Internet