There was a time when it was impossible to get a credit card if you didn’t have a proven means to repay the debt. No more. Credit card lenders learned something a couple of decades ago that they’re using for all it’s worth: extending credit cards to college students guarantees customers later in life.
Today, nearly every college student has one or more credit cards. Most will handle the arrangement responsibly, but many will experience some sort of credit problems either during their time in college or shortly after. And there are several reasons for this.
There’s no way to pay them back
If you’re in college and you don’t have a job, it’s unlikely that you’re paying on your credit cards. And if you aren’t—and your parents aren’t either—chances are that the balances on them are snowballing to higher levels with each passing month. That’s what happens when you have no way of paying them.
Students are often the world’s greatest optimists when it comes to their future income potential. But four years of credit card debt can be an enormous burden to carry into your adult life when you finally get there.
Credit can discourage working
Heavier reliance on credit is freeing up students to devote greater time to schoolwork. Working to pay some or even most of college costs isn’t as common as it once was.
One of the under-appreciated aspects of college life is living expenses, the kind that aren’t covered under student loans. This can be money for food, transportation, entertainment, travel to and from home and even cell phone service. The money to pay those often comes from credit cards.
Excessive use of credit cards in college can discourage working as a way to help pay for college expenses. It’s an easy pattern to get into—borrowing is easier and less time consuming than work, and the bill doesn’t come due until much later.
Credit cards + student loans = big trouble later
It isn’t so much that credit cards or student loans are bad for your finances, but rather when the two appear in tandem.
Student loans create substantial long-term debt, while credit cards hit you with relentless short term debt (they don’t call them “revolving” for nothing!). It’s a matter of stacking a double dose of debt on a person who either isn’t employed (pre-graduation), or does have a job and is struggling to get out of the starting gate of adult life.
Difficulty paying credit cards can wreck credit for a long time
If you’ve ever had serious credit problems then you know how hard it can be and how long it can take to fix it. If a student is graduating with debt, they’ll have their hands full dealing with that alone. But when you add bad credit to the mix, it can be a long, lonely climb into adulthood.
The mix of student loans and credit cards can set the stage for this exact problem.
While it may be necessary for a young person to borrow in order to make it through school, the fact is that they will also have needs when they graduate that will make borrowing necessary. A first car after graduation is one such need; making a geographic move to a distant city for a new job is another. That will be harder or even impossible if you’re credit has been wrecked before you even graduate from college.
Lack of maturity
I realize that this is painting with a broad brush, but at age 18, 19, 20 or even 21 many students lack the maturity to handle credit cards. Add that to the fact that the whole concept of credit cards is largely set up to encourage spending and it could be a recipe for disaster.
In addition, if the student isn’t fully responsible for paying the credit cards the connection between using them and paying for them may be vague at best.
It’s no coincidence that credit problems often hit early in life—it’s the combination of need and immaturity in the early years of adulthood. For that reason, credit cards should be seen as a last resort in an emergency, rather than a typical way to transact business.
There are different opinions on this subject of course; what do you think?
