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University students wear out plastic, face costs

As credit card companies entice students with everything from free t-shirts to college-themed shot glasses, some state officials say students are sometimes signing up for a cycle of debt when they sign up for new credit cards.

Credit cards can be useful financial tools because they offer the convenience of knowing an item can be purchased now and paid for later. But this convenience sometimes can lead to problems: The lure of new clothing, shoes and other items led one University student, who asked to remain anonymous, into a hefty $8,000 debt.

"I thought I could pay it all off," she said.

Shortly afterwards, she lost her job, making it more difficult to pay off her debt.

"I'm in $8,000 worth of credit card debt now, and I can only make the minimal payments," she said.

Despite their potential risks, credit cards often prove useful for students.

According to a spring 1999 study by Student Monitor, 19 percent of college students get credit cards because they are safer to carry than cash.

Credit cards also offer the advantage of consumer protection under federal law. Sixty-three percent of students said they apply for credit cards to establish a good credit history, according to the spring 1999 Student Monitor, and forty-three percent said they get them for protection against emergency.

But if bills are not paid in full, the card holder suffers the repercussions.

One of the main focuses of Madison House's Consumer Information Services program is credit card debt among students and how to avoid these repercussions.

"We try to educate students about credit card debt because we at C.I.S. believe that credit card debt is a major problem with students at U.Va.," C.I.S Program Co-Director, Jeff Shauer said.

According to the Federal Trade Commission, finance charges are levied on the unpaid balance, commonly called interest.

If a student continues to use his or her credit cards while carrying an outstanding balance, debt can snowball.

At this point, minimum payments only cover the interest. Any delays in repayment of these debts guarantees a less than perfect credit report. This could jeopardize the chance to receive a loan for a car, house or a number of other items, to get insurance, or even to get a job.

"Credit cards are readily accessible around campus and around town. You don't have to carry cash. It's a form of I.D. in some respects. It's an advantage to a parent or guardian knowing that child has it in the event that they need it," said Joseph Face, commissioner of the State Bureau of Financial Institutions. "The disadvantage is that it's too easy to use."

The Federal Trade Commission states in its policies that in order to obtain a credit card, the holder must be at least 18 years old -- one of the reasons college-aged consumers are targeted. (see related story)

"College students are a new market for credit card companies to target," said Gala Wan, Consumer Information Services Program co-director.

Second-year College student Irene Wilkins said she felt the adverse effects of credit card targeting -- this time not in the form of debt accumulation but by signing up for too many credit cards.

"On the Corner I filled out 10 applications," Wilkins said.

She called to cancel nine of the cards as they poured into her mailbox one by one, but forgot to get rid of one.

With this simple mistake, a mysterious $80 was charged to the credit card when the bill was sent to her parents' house. Wilkins said she suspects she did not dispose of the unwanted credit card in the proper manner.

Not using the credit cards they sign up for is not a safe bet for students either.

They may think that it is of no harm to have a number of credit cards if they are not being used or accumulating debt, said Kathy Lee, prevention specialist of the Office of Consumer Affairs Division of Consumer Protection, in the Virginia state department of Agriculture and Consumer Services. But "unused credit cards pose potential debt to a student seeking to buy a car or get a loan."

Businesses see potential debt as money that could possibly be charged on credit cards, even if the cards remain untouched.

This debt could inhibit a student from being able to pay other bills, such as car or loan payments.

But students still have rights when it comes to credit card usage.

Federal law prohibits issuers from sending unsolicited cards to students -- or anyone, for that matter.

Also to protect students, the credit card issuer must credit the account the day payment is received unless the payment is not made according to the creditor's requirements. This reduces interest on debt.

However, an issuer can send a renewal or substitute card without request, according to the Federal Trade Commission.

Issuers also may send an application or solicit via telephone.

The Virginia Department of Agriculture and Consumer Services suggests several ways for students to protect themselves against credit card debt.

Students can make a cash flow sheet, showing the amount of income received and how much is spent each month. The sheet should show spending habits and necessary expenses, such as food. It should also show optional expenses, such as entertainment.

For example, if someone owes $2,000 at an 18.5 annual percentage rate: and $25 is paid per month, it will take 100 years to pay the debt off and $28,000 worth of interest will have been paid. But if $200 per month is paid, it will take one year to pay off the debt with $153 of interest paid.

Most importantly, students should refrain from using credit cards until debt is under control.

Although credit cards are readily available to college students and are easily misused, a large number of students maintain their credit wisely. According to "The 1998 Institute for Higher Education Policy's Credit Card Survey," 86 percent of college students pay their own bills, 59 percent of college students pay their monthly credit card bill in full, and of the 41 percent of students who do carry a balance, 81 percent pay more than the minimum amount due.

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