Students experience plastic debt from spending

By Natalie Garcia
The Collegian

Imagine a culture of trust where a large company gives you a small, thin piece of plastic with your name on it, and you could buy anything you wanted instantly.

A new TV, stereo system or that new wardrobe you always wanted, and all that company wants in return is about 2 percent of what you spent a month, plus a small fee for being so gracious to allow you to live like a sultan on a college student’s budget.

Don’t worry about how much you spend. You will pay it off later. Plus, you really did need those new clothes for work. It’s a job-related expense. The TV well, the interest rate is really low on your Visa for a year, so you’ll have it paid off by then.

Fat chance.

Over the last two decades credit card companies have been preying on this exact sort of wildly optimistic thinking of many college students that never really seems to materialize: Indulge now, live leanly later.

“I think I was just on this spending spree. I didn’t care. I wanted it, so I bought it,” said Marie, a 22-year-old business major who raked up more than $5,000 in credit card debt during her first two years in college.

“It’s easy because I think that it’s free money at the time, but I’m going to have to pay it back later.”

Marie said she has controlled her spending since her old carefree days of shopping sprees, but getting out of the hole wasn’t easy or without regret.

“It was always on my mind,” she said. “How am I going to pay for it? Am I ever going to be able to get out of debt? I’m an idiot.”

Eventually her self-berating and astronomical interest rates got the best of her, and she paid down her debt to the $1,100 she currently holds over four different cards, instead of her previous seven.

“I got a lot of money on my tax return and I dumped all my savings to pay off my credit cards,” she said. “So now I don’t have any savings anymore.”

Despite her empty savings account, Marie is glad she paid off the majority of her debt. She said if she were to do it over, she would have stuck to her one student Visa card from Bank of America to establish her credit.

She isn’t alone, or even extraordinary, in her spending habits among college students.

Jassim Amir teaches a personal finance class that helps students build basic skills regarding checking accounts, retirement plans, stocks and of course, credit cards.

“Typically, in a class of 40 students maybe four or five don’t have credit cards.” Amir said. “I think the credit card companies give money to anyone that asks for one.”

Amir said to avoid department store credit cards all together, because the interest rates are much higher than bank-issued credit cards. Charging large items can cost much more than anticipated.

“If you go to a department store and charge $2,000 with an interest rate of 18 to 19 percent, it would take 11 years with minimum payments to pay it off, including the additional $2,400 you will pay in interest,” Amir said.

Although Amir said some students do get themselves into debt they can’t handle, he isn’t completely opposed to college students have a little credit at their disposal.

“I’m not anti-credit card,” he said. “It’s good to establish credit. Don’t get too many credit cards. I think one or two is enough.”

He also warns students their credit history is not just for landlords anymore. Many government employers, such as the Fire and Police Departments are looking at potential employees’ credit histories and it’s completely legal, Amir said.

“If they see that a person has a high credit score, they see a responsible person,” Amir said.

Sadly, the inverse is just as telling.

Amir said he has some simple advice for young people with credit cards to control frivilous spending:

“Don’t carry it with you!”

According to a CBS News report in September of 2003, by the time college students reach their senior year, 31 percent carry a balance of $3,000 to $7,000 on credit cards. Also, 27 percent of students use their credit cards to finance their educations. Of those students, the average credit card debt they have upon graduation is $3,400, opposed to the average graduate’s balance of $1,600.

Brendan Evans, an economics major, charged the expenses of a semester in Ireland entirely on his credit card.

“If there’s one thing you would want to go into debt for it’s traveling, studying abroad and learning about cultures,” the 22-year-old senior economics major said.

Evans said he charged his plane ticket, housing expenses, living expenses and tuition to his credit card, in the end totaling about $4,000.

He has no regrets about his decision to charge the trip and has a plan to pay it off.

“The difference is that it will be paid off by July,” Evans said. He has a full-time summer job that he said will be enough to repay his debt.

He continues to use his credit card but only for expenses such as food and gas, which Evans said he pays off every month.

“The only balance that I’m keeping is from the Ireland expenses,” Evans said.

Evans doesn’t think credit cards are a bad thing, as long as you know what you are getting into.

“I learned it by being in it,” he said. “I got my first credit card as a freshman. It’s just a loan, not free money.”

He thinks credit cards are necessary for college students.

“It’s important to have credit cards at the college age to develop a credit history,” Evans said. “It’s kind of a necessary evil. It’s important to have them at this age to understand the problems with them.”

Ernie Paz is the branch manager of Golden 1 Credit Union on Fresno State’s campus. Although he said about 90 percent of students are responsible with their spending, a few others have some trouble harnessing their new plastic companion.

“It’s tough in college, you want to save, but then you see your friends go out. What’s 20 bucks? Pretty soon you go in $50 in debt, then another $50,” Paz said.

Paz said the decision to get a credit card in college is complicated.

“It’s kind of a Catch-22,” he said. “You need to build credit for the future, but you may be starting too early.”

Paz said he advises students to get only one credit card for emergencies such as an unexpected bill and car repairs. He also said to check the interest rates, the interest cycle period, which can be every two weeks on some cards and the annual fee.

For all of those new freshmen, beware of the plastic temptation. Paz has seen many young students enjoy the college life by spreading their wings without restraint.

“I think they just want to spend money. A lot of them are just 18 and they think it’s a sign of independence,” he said. “Most of the time they say, ‘I wish I didn’t do that.’”

Comment on this story in the News forum >>