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In today’s economic climate, many people are using credit cards to pay bills and even to purchase necessities such as groceries and gas. Those who are out of work are racking up thousands in debt and incurring high interest fees. However, they would be worse off if they hadn’t used their credit cards. In contrast, some people who simply overuse credit cards because they are unaware of the consequences; these people are usually college students. Credit card companies have traditionally targeted college students with low introductory rate fees and advertisements that encourage spending. Unfortunately, some students go overboard and find themselves in debt.
The average, traditional-aged college student owes about $3,000 in credit card debt, but some students owe up to $7,000 or even $10,000-and these numbers do not account for student loan debt. Half of all students own up to four separate credit cards. Their monthly balances on each card average about $400. A fourth of all students have paid more than one late fee and a smaller amount paid an ‘over the limit’ fee. Many college students pay off their balances as quickly as they can, but they incur higher interest rates because after the introductory rate expires.
So what are these students spending money on? A majority say that they charge items needed for their educations. The most expensive general item that most college students probably charge is textbooks. Some of them cost up to $200 or more. If a student is taking five classes, he or she could easily charge $1,000 in the first few days of classes. However, students who research online know that they can buy used books for a much lower cost, and there are textbook rental web sites that offer even greater savings. Students might charge things like backpacks and music players as well. They need something to carry their books in, and having music is a great stress reliever, but some students probably overspend when buying such items. Using a credit card makes overspending easier, especially if the student owes several hundred dollars already. They might think that charging another $50 or $100 doesn’t matter, but it does. The most frivolous students will also charge trendy sneakers and designer jeans, and those are the ones with the $7,000 balances.
However, all college students are not necessarily overspending on purpose. Financial literacy is something that many are not taught at home or in high school. About half of students surveyed understood basic questions about general financial concepts. Less than half knew how to use a credit card, and a quarter of students interviewed understood finance charges and late fees, most likely to their detriment. These statistics show that financial literacy should be emphasized in the senior year of high school or even as part of the Freshmen Orientation classes that are popular on most campuses today.
For students, using a credit card can be positive, because they can begin to earn a credit history early on, which will help them later in life-but only if they don’t go into long term debt. The fact is that students need more financial education, plain and simple. If students learn the basics about credit cards before they begin using them, they will incur less debt.
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