Credit cards can bury a young student

Getting Started

Your Money

March 07, 2004|By JULIE CLAIRE DIOP

A BIOCHEMISTRY graduate student I know - she asked that I just call her Daisy - should have been able to get by on her university stipend. But getting by wasn't quite enough.

Daisy found that she could treat her friends to rounds of drinks, and come home for Christmas with suitcases full of presents, by relying on credit cards.

She maxed out five credit cards in one year and accumulated $17,000 in debt, with three years of school left. "You lose track," she said. "They give you a huge amount of credit."

She paid interest on the debt of 15 percent to 24 percent, depending on the card. Although she kept up with the minimum payments, she could not make a dent in what she owed.

The credit card companies kept a close eye on her. When she didn't use one card for six months, her spending limit doubled. When another credit card company saw how much debt she had, it halved her limit. She called another company to request an increase in her limit and was told no. She already had enough debt to pay off.

Credit card issuers love people like Daisy, who have lots of potential but little experience with debt. Their parents usually won't let them sink, so they'll eventually pay up. And they tend to stick to their first credit cards, becoming valuable long-term customers.

Students are especially vulnerable to credit card pitches because they're in a new environment, have never been in charge of their finances and feel pressure to keep up with friends. "Credit cards to students are like steroids to athletes," said Robert Manning, author of the book Credit Card Nation: The Consequences of America's Addiction to Credit.

Manning cites 2002 figures showing that three of four undergraduates had credit cards, and 60 percent of them had maxed out the cards in their freshman year.

Psychological toll

There are no figures on the psychological toll that debt has had on young people, but there is plenty of anecdotal evidence that it's a serious problem. "There are a lot of suicides," Manning said.

Daisy didn't panic until her boyfriend found a stack of bills she had hidden from him. He couldn't believe how irresponsible she had been. Daisy stopped sleeping and cried often, terrified that she was stuck. She also worried that her boyfriend would leave her.

She had few options. Her mother had already helped her out once and did not have $17,000 to offer this time. Three-fourths of students pay off their credit card debt with low-interest student loans, but Daisy didn't qualify for another loan.

Her last student loan had gone toward paying off credit card debt. She could drop out of school, file for bankruptcy or just let the bills pile up - all bad choices.

Being tagged as a deadbeat ruins more than your borrowing power: Many employers check credit reports as part of the hiring process.

And the damage is long lasting. A personal bankruptcy remains on your credit report for up to 10 years.

Daisy was able to get a loan to pay her debts by having her brother co-sign it, which means he is responsible if she misses a payment. She still has her boyfriend and says she's down to one credit card and pays it off every month. "I don't go out for lunch anymore," she said. "It's amazing how much money that saves me."

Digging yourself out

For all the problems credit cards can cause, they're also a wonderful way to build up credit when you're young, so when you want to buy a house or a car, you have a track record to show you are responsible.

If you've gotten yourself into a credit hole and are a student, the first thing to do is see if your school offers free credit counseling. If you're out of school, you can get tips from Web sites such as, run by the nonprofit credit-counseling agency Cambridge Credit Counseling Corp.

There are a lot of scam artists masquerading as credit counselors, so be careful. Try going to the National Foundation for Credit Counseling's Web site to look for accredited counseling agencies in your area. Financial counselors can help you negotiate lower interest rates and reduced fees.

Just know ahead of time that it can take a few years to get your head above water again.

E-mail Julie Claire Diop at

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