Credit Cards: The Good, the Bad, and the Ugly

I recently found this article on the best credit cards for college kids and realized that every beneficial personal finance topic must already be covered because we're now off on fringe suggestions that we shouldn't even be considering. Why not title this piece "The Best Way to Make Sure Your Child Gets into a Lifetime of Debt" or "How to Set Your Kid Up for Financial Ruin?" Sheeesh!

I'm going to ignore the "best credit card for college kids" question other than to say the "best" card is no card at all. However, there were several interesting (in both good and bad ways) comments in the article that I did want to point out. Here's the first:

Over three-quarters of all college kids have a credit card, according to a recent study published by the student loan firm Nellie Mae.

Wow, I had no idea. Is it really this bad? I would have guessed 40% to 50% tops, but I never thought it was 75%. No wonder so many people leave college with a ton of credit card debt.

Here's another thought:

"Avoid [credit cards] that get over 20 percent [interest]," he says.

This is a recommendation -- that a 19% interest-charging credit card is ok? Yikes! Instead, I recommend paying off your high-rate credit cards to earn a guaranteed "investment" return.

College kids tend to carry a balance on their credit card.

So, 75% of them have cards and most of them carry a balance? Great. Just great.

"For anyone that can handle their finances and pay the card off every month, I encourage them to take advantage of reward cards," says McHenry.

Ok, I can agree with this. I have a cash-back card myself and you can earn money with cash-back reward credit cards. The keys simply are to not spend more than you would have otherwise (just because you have a card) and to pay it off every month. If these happen, then a cash-back card actually gives you FREE MONEY!! (Something I highly recommend if you can get it.) ;-)

Parents and students should also realize there are plenty of issuers out there that are looking to make a buck off the financially naive, including college kids.

No, really? Credit card companies wouldn't do this to innocent young adults, would they?

Just another reason not to have a card when you're in school. But, it gets worse:

Some issuers, for example, will hit the cardholder with a number of hidden fees, or even worse, says Arnold, they will promise a lucrative gift such as a computer, but then require that the card holder maintain a balance on their card, all while paying interest.

"Some of the offers out there are just really bad apples and basically huge rip-off offers," he says.

Yep. Like I said above: no card = good move.

Ok, now that I've had my fun, I'm sure I'll get a ga-zillion comments on why having a credit card is good for a college student (emergencies, builds up a credit history, etc.). FYI, I can agree that if the student can handle credit, then a card is ok. But the vast majority of students have shown that they aren't able to manage a credit card appropriately. As such, I suggest parents think long and hard before they allow their son or daughter to get a credit card while in college. The benefits are far outweighed by the costs.

Comments

[prlinkbiz]

Credit is so powerful in our society, the key is not in having no credit card, but the correct "starter" card so kids cna learn and build credit. I agree the high limits cards with ridiculous rates should be viewed as predatory! However, parents can help their kids by helping them open up a secured credit card, with say a $300-$500 limit. Teach them to use it for monthly expenses and pay it down each month- like training wheels! Credit history is hugely important for things like buying a home. It's all in how it is done.

[Kraft]

Young adults do not need to have mommy's or daddy's permission to get a credit card. As a college student, I have multiple credit cards and none of which was the concern of my mother at any point.

The key is to teach your kids, when they are still kids, the proper way to manage money by both example and actual instruction. You can't always control them and it'll go a long way to a more mature relationship with your children.

As a disclaimer, I do carry some consumer debt yes, but except for my car insurance, I pay for everything that I have. I work full-time and I attend school full-time. In short, I am part of the 75% who have a credit card with a balance.

I agree with virtually everything you said in your post; however, saying that parents shouldn't *allow* their kids to get a credit card in college simply doesn't fly if you've raised your kids to be mature and responsible for their actions.

[FMF]

Kraft -- You're still raising them in the college years -- unless they are out on their own, paying all their bills, college expenses, etc.

The fact that you have credit card debt and don't/can't pay it off, just reinforces the point.

[The DEBTective]

The only good credit card is one that's cut up and closed down, baby. Being responsible with dough starts with only using money that is already yours. Save money and use a debit card instead of a credit card. The difference? A debit card won't get you into debt or trouble, jack.