The Perils of Plastic
Banks, eager to capture customers early, are increasingly sending credit card pitches to teenagers. And many teens are eager to respond. As many as 1 in 4 college freshmen arrives on campus already equipped with charge cards. It doesn't take long before the majority of other college students also arm themselves with what some call "yuppie food stamps." Unfortunately, a sizable minority of students abuse their cards. Of the 40 percent of plastic-equipped students who have a balance due, the average debt is over $2,000. Here are some tips to avoid getting into trouble:
Just say no
Plenty of college students get by with cash and ATM cards. Pros: One of the best ways to make sure students spend within their means. Cons: Debit cards sometimes offer less consumer protection. If a number is stolen, thieves can drain an account. Also, users aren't building up a credit history that will enable them to get loans later.
Prepaid cards are limited to the amount you send in advance. Pros: Besides keeping spending in check, many allow parents to view the transactions online. Cons: Can be expensive; they pay no interest, and many banks charge fees for issuing or reloading.
Mom and dad
Banks generally require parents to cosign for cards for anyone under 18. But many older students also have shared cards. Pros: Parents can monitor the student's spending. Cons: Parents can monitor the student's spending. Also, parents are on the hook if the student splurges.
Your own account
This is the most popular option. Pros: Students can rent cars or buy plane tickets in an emergency. They can also build up a good credit score. Cons: Plastic makes it so easy to buy things that many students don't realize they are spending more than they can afford. Then, when the student can't, or forgets to, make payments, the debt balloons with late fees and double-digit interest. The trouble is then often reported to credit-rating agencies, which can hurt the student's employment options.
This story appears in the December 12, 2005 print edition of U.S. News & World Report.