Credit Card Resources and Tips

Through a combination of aggressive campus marketing, trinket giveaways, other inducements, and deceptive terms and interest rates, credit card companies lure financially green students into a credit card trap that plunges them into deep debt.

• 71% of young adult cardholders do not pay off their balance in full each month, compared to 55% of all cardholders. In 2001, 83% of all undergraduates had one credit card; the average student carries four!
• Balances among college student consumers have risen sharply; over the last decade, one survey found credit debt had shot up 134%. College seniors graduate with an average of $3,262 in card debt. Deep debt creates financial hardship for students at the point in their lives when they should be moving forward.

It's important to research the terms of a credit card before you apply. For example, this chart shows that you can end up paying a lot more to pay off your credit card bill if your card has a penalty APR and you make a late payment. The chart assumes you are paying the tiny minimum payment that the company charges you, rather than paying more than the minimum each month.

Here are our six tips to avoid getting stuck with deep credit card debt:

1) Shop around before getting a card. Deceptive terms and conditions abound throughout the industry. Look for:

• An APR of 15% or lower;
• No annual fees;
• No universal default clause (where a credit card company claims the right to impose penalty rates if you are allegedly late paying to a different creditor or utility company).

Also, read the fine lines on teaser rates - make sure that you don't agree to a low rate that then can rocket above 15-20% after the 90-day teaser expires.

2) Use credit cards sparingly. Companies try to lure you with "rewards programs" and incentives so you will use your credit card to pay for everything from pizza to rent to gasoline expenses. The debt you'll incur outpaces any additional value of what you gain in rewards. A 1% reward doesn't reduce a 25% APR very much! So pay for day-to-day and cost-of-living expenses in cash as much as possible. Use the credit card only for the big ticket necessities you need to accomplish your main priorities.

3) Pay off balances in full each month. Companies keep the minimum monthly payment low so that you'll extend your payment over time and wrack up additional debt in interest. If you can't pay off the card in full, then make the largest payment possible each month. Always pay more than the minimum required.

4) Make your payments as early as possible every month (at least 7-10 days before it is due) to avoid late charges. Also, watch for the trick of the "changing due date" (e.g., all of a sudden, your bill is due on the 25th, not the 30th). Companies routinely charge late fees which can be over $30. Worse, when you pay late, nearly half of all companies also jack up your interest rate to 25-30% APR or more! Some credit card companies even impose penalty rates (universal default) if you are late to a different creditor or utility company but on time to them.

5) Call your credit card company and ask for a lower rate. It's cheaper for a credit card company to keep a customer than find a new one, so if you think that your interest rate is too high, call the number on your card and ask for a lower one. In a recent PIRG study, over half the consumers who called lowered their rates by a third or more.

6) If you have a problem paying, seek help. See if the university has a financial counselor you can consult with. Consider cutting up (or locking up) your card and paying it off in a timely manner with a personal loan from a family member. Consider talking to a credit counseling service, but be careful as this once-respectable business now includes numerous fly-by-night operations.

The Student PIRGs' Platform on Irresponsible Credit Card Practices

1) We're educating our fellow students (and organizing them to help us with the rest of our platform).

2) We're recommending that colleges and universities adopt "Best Practices" to get the worst credit card companies off campus. We're urging colleges and universities to do a better job of financial education.

3) We're supporting efforts in Congress to restrict the most unfair credit card company practices.

4) We're working with Americans for Fairness In Lending and the producer of Maxed Out to conduct education campaigns about high-cost credit.

Additional Resources

U.S. PIRG's Truth About Credit campaign

A Road Map To Avoid Credit Card Hazards (PDF)

U.S. PIRG Report: Deflate Your Rate: How To Lower Your Credit Card APR

Maryland PIRG Report: Graduating Into Debt: Credit Card Marketing on Maryland College Campuses

Frontline Interview with U.S. PIRG's Ed Mierzwinski

Take Action - tell us your story about credit cards