Keep Your College Student From Falling Into Credit Card Debt

Just as the infamous “freshman 15” can pile up before you know it, so can a mountain of credit card debts for new college students not used to managing their own finances.

In fact, the problem of excess credit card debt among college students has become so widespread that a  law went into effect in 2010. It prohibits credit card companies from extending credit to anyone under 21 unless that person has a co-signer who is over 21, or can demonstrate an independent means of being able to pay the bills.

But even if you agree to co-sign for your college student’s card, you won’t be seeing the monthly bills, and your son or daughter can still get into plenty of financial mischief for which you would ultimately be liable. Here’s how to help your child avoid getting in over his or her head.

  1. Be sure your child understands exactly how credit cards work. “People tend to take payment cards for granted in our society today,” says Peter Garuccio, spokesman for the American Bankers Association. “The key thing to remember is that the use of a credit card represents a loan that has to be paid back with interest.”
  2. Start slow. Garuccio suggests introducing your child to the world of credit even before college, perhaps with a prepaid card loaded with a few hundred dollars. Once you feel confident about your child’s ability to handle a prepaid card, he or she can graduate to a “real” credit card.
  3. Teach your child to be a smart credit card user. That means paying the bill on time and in full every month to avoid late fees and interest charges, selecting a card with the lowest possible interest rate, tracking credit card charges so that the monthly bill isn’t a surprise, and managing finances so there’s enough money in the checking account to cover the bill when it arrives.
  4. Explain the importance of building a good credit history. Using a credit card wisely now will help your child create a good credit record that can later help him or her rent an apartment, buy a car or house, even land a job (employers increasingly are running credit checks on applicants).