As an avid consumer advocate in the field of credit and debt management, I have been opposed to unleashed campus credit for years.
In 2001 I began writing a series of articles opposing this trend starting with the review of a CBS special. CBS initiated their expose with the words: “Across America’s college campuses, students are running up mountains of debt on credit cards -- cards banks pressure them into taking. No job or income is required.” (See Students Hooked on Credit)
Tragically, not too much has changed except that the trend has gotten worse. In fact, in Danny Schector’s newer film, (In Debt We Trust: America Before the Bubble Bursts), an entire segment of the film discusses the issue with parents and incoming freshman. Economic guru and consumer advocate Dr. Robert Manning offers parent/student orientation on the problems of credit card use and cites examples of students with thousands of dollars of credit card debt and no income to pay it. Meanwhile right outside this orientation, numerous credit card vendors are signing up students by the scores offering them low and no-interest cards without the sales vendor even knowing how long the “special offer” lasts nor what the interest rate will be at the end of the “special”.
This unconscionable exercise is repeated across the country on campus after campus after campus. But it doesn’t end there. High schools do not fair too much better. The stats regarding high school card usage may surprise some. According to the JumpStart Coalition for Personal Financial Literacy, a nonprofit educational organization, nearly a third of high school seniors reported having a credit card of their own or one co-signed by a parent.
In 1997, I wrote an article called Credit Cards... Just Like Drugs. In it I said there was no better analogy than credit and drugs. We use it (credit) and use it and use it until we can't live without it. Yet we live in an "age of plastic" and our youth must be taught to use plastic responsibly, even if we as parents have not. Sounds reasonable, right? But how exactly do you we go about doing that?
Perhaps a debit card could be a useful “training wheels” approach for a pre-18 youth. Purchases are deducted immediately from a banking account balance and may be refused if there are not adequate funds in the account to cover the purchase. The hope is that your child will learn to use plastic in a responsible manner, while limiting the potential pitfalls that are often associated with credit cards.
Another approach is a secured credit card. A savings account could be established with the youngster’s earned money. The card is available to be used but only to the extent of what is left in the savings account. Pre paid credit cards are a similar option and force the youth to stay within a limited expenditure.
Yet another idea would be to for a parent to permit the teen to be an authorized user on the parents low limit card. With this approach, however, I am convinced that precautions need to be in place in advance.
1. First of all the youth should never be permitted to be an authorized user if they are not employed and able to make payment.
2. There should never be a limit higher than $300-500.
3. Should the youth end their employment, the card must be returned to the primary account holder until a method of repayment can be established.
The bottom line is that a parent is responsible for the debt of a minor. If your teenager had a credit card at this moment, would you be willing to drop them off at the mall with their card? If not, perhaps parental training before they reach 18 is in order. If after the youth is 18 there is still parental influence, I recommend a limited credit of $500 with an annual increase of $500 if the preceding year has demonstrated responsible handling of the card.
But what if the over-18 youth is issued a card and then runs up significant debt without the income to support it. First of all the youth is responsible for the debt. So what can he or she do? There are only 2 alternatives… increase the income or decrease the expense.
If increasing income is not an option by either selling something or working additional hours, my personal advice to a parent is NOT to bale the youth out of debt. This will teach nothing. Therefore the only recourse is decrease expenses.
1. Call creditors and request a decrease in interest rate. This may sound absurd but it is done every day.
2. There are also scores of magazines offering ways to stretch your dollar.
3. Similarly your favorite search engine will produce more frugal sites than you can ever read. Each of these sites informs the reader of ideas to save money and to accomplish exactly what you are already doing… but for less.
Okay. You can’t increase your income nor stretch your dollar any further than it is already. Now you are down to credit counselling, debt management programs or debt negotiation. I strongly encourage you to be very careful in your selection of any of these avenues. In fact I encourage you to read other materials by this or similar consumer advocate authors, about each of these options. Tragically there are many unscrupulous agencies that take advantage of opportunities especially at the expense of youth and inexperience. Find out the track record of the perspective firm. What is their completion rate? What does the Better Business Bureau have to say about them?
If the proper option has still not appeared, there is only one other recourse and bankruptcy is certainly not a preferred method for folks just starting out.
_______________________
Readers will probably be interested to know Mike, the author of this article, also offers a free debt elimination mini-course via e-mail. You can enroll at Debt Free in 7.5 Years.
