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For many people, how to pay for a college education is one of the first major financial decisions they'll make.
The credit card industry is pretty sneaky, as college creates an enticing marketing opportunity for financial institutions. They come to college campuses every year and offer free gifts to students who apply for credit cards. Why is this sneaky? Unfortunately, unsuspecting students who don't really know how to manage their money sign up for credit cards in order to receive the promotional gifts, and then end up using their credit cards irresponsibly. They ultimately wind up with credit card debt, and have to pay high monthly interest rates to credit card companies to finance that debt.
This sneaky behavior is destructive to college kids because high interest rates can create an unending cycle of debt that can spiral out of control. If a student can't pay their minimum balance one month, they might get another credit card to make the payment, thus borrowing more money. If the student doesn't pay their bill on time, they develop a bad credit rating which can be even more damaging over the long term. If you have a bad credit rating, most lending institutions will only lend you money at a very high interest rate, or won't lend you money at all. Bad credit ratings can effect your ability to rent an apartment, or get a home mortgage.
The average undergraduate has approximately $2,200 in credit card debt, according to Nellie Mae, the nation's largest maker of student loans. That figure jumps to $5,800 for graduate students. Since so many student credit cards have high annual percentage rates, the longer these youngsters wait to pay the cards off, the worse it gets.
Note: If the student sticks to minimum payments it would take them more than 12 years and $1,115 in interest to pay off a $1,000 bill on a card with an 18 percent annual rate.
The best advice for a student just entering college is to stay away from credit cards altogether. Get yourself a debit card that takes money directly out of your own bank account, thus ensuring you don't spend more money than you have. If you end up short on money one month, deal with the consequences and learn from your mistakes.