Wannabe plastic users beware
By Sheldon Yoder

Dr. Rinne Martin loves to tell the story in his Personal Financial Planning class of the time a student brought him a credit card application being distributed in the dorms. The credit card seemed normal at first glance, but, upon closer examination, revealed a fatal flaw-namely, an annual percentage rate of 35.5 percent, which jumped to 41.5 percent if the individual was late on a payment.

After allowing the class to chuckle for a bit at the thought of applying for such a card, Martin comes to his point with sobering clarity. "It's sad, but I can almost guarantee that one of you has this card."

Martin could very well be right. A study made public in 2002 by leading student loan provider Nellie Mae found that the percentage of freshmen carrying credit cards, at 54 percent, is the least of any undergraduate. By the sophomore year, that number jumps to 92 percent.

It seems silly that something as innocuous as a 3-and-a-half by 2 inch piece of plastic could be so tempting, but the truth is that credit card debt for college students continues to rise. The median debt level for college students jumped from $1,236 in 2000 to $1,770 in 2001.

According to John Brown, Director of the College & Career Guidance Center, high balances on credit cards do not bode well for the student come graduation. "Escalating multiple card balances set up the new graduate for failure."

Vacations are always a prime time to use a credit card. Carrying around wads of money can be troublesome; swiping a plastic card is much simpler. With spring break just past, many students who used the reprieve to visit the beaches of Florida or the snow-covered mountains of Colorado will, no doubt, find their bills a bit heftier than normal at the end of the month.

Martin tells his students that credit card use can be a good thing, if carefully thought out. Inevitably, though, students who run into financial difficulties do so because of management problems, not cash flow difficulties.

For sophomore Chad Byrne, his first credit card came at the age of 24. He wanted to purchase a guitar that matched his increasing musical talent and, after finding a suitable instrument, he used the store's financing. Several months later, however, the introductory interest skyrocketed.

Byrne neatly avoided that expense by paying the bill off with a lower-interest credit card. Byrne, like many college students at ORU, has continued to use his credit card in moderation. According to an informal poll of students at ORU, many have credit cards but use them infrequently; those who use their cards usually do not carry a balance from month to month.

This is the healthiest way to use a credit card, Byrne said. Since coming to ORU, however, he has been unable to do this. Competing expenses such as car payments, insurance and tuition bills force some students in similar situations to carry a balance from month to month.

Martin feels that ORU differs from most colleges in credit card spending. Due to the honor code and Christian values of the students, many are not needlessly spending money on alcohol and tobacco, a major expense of most college students, said Martin. Nevertheless, every semester students come to him, deeply mired in credit card debt and struggling to get back on their feet.

"Traditionally, many of the banking entities that provide non-subsidized financial aid or student loans have an established practice of targeting college students as a new market for credit cards," said Brown, commenting on his nearly two decades in the credit union and banking industry.

This is in spite of the fact that many students have education loans but no jobs. According to Nellie Mae, student borrowers are valuable customers because they tend to stay loyal to their first card, using it for many years to come. Martin has another reason for why companies are not afraid to grant financially inexperienced students credit cards: parents will usually bail their cash-strapped child out.

"The credit card companies have got mom and dad by the ear," Martin said. "If the parents don't pay the bill, the credit card companies are gonna ruin [the student's] credit rating."

To students, Martin offers these words of advice. "Don't use credit cards for normal living expenses without the means to pay in full or to purchase durable goods that should be financed with lower-cost installment loans, such as televisions, automobiles or education."

Martin also cautioned against using a credit card to pay for goods or services that don't last, such as concert tickets or clothes, without the means to pay the full cost. Since these items can't be sold back for their full amount after used, you could be in serious trouble when the bill comes due and the money is not there to cover the item.

As Martin puts it, there are some good reasons to have a credit card in your name. "It reduces the need to carry substantial amounts of cash, it is convenient and has protection against fraud. It's also the most effective way to build credit, next to having a savings and checking account."

Nonetheless, credit cards, like handguns, can be destructive if used in the wrong way. Martin offers a final word of advice to wannabe plastic users: "Beware!"

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