Carolyn Schallom heard horror stories about college students running up excessive credit card debt, so she decided not to apply for a credit card. But a few months into her freshman year at St. Louis University (St. Louis, MO), she changed her mind. "My parents convinced me I should have a card for emergencies. I only got it so they would feel better," she says.

Carolyn was approved for a credit card with a $500 limit and was very responsible with the card -- at first. But when she got used to having plastic in her purse, Carolyn began charging clothes, groceries, books, and trips. "At first, I always paid the balance before I used the card again," she says. "Sometimes, I would make two payments a month just to get the balance down."

After Carolyn graduated, the credit card bill became harder to pay each month. "I'm carrying a balance now because I'm unemployed," she says. "Making smaller monthly payments helps me keep some money in the bank."

Still, Carolyn is fortunate. Even though she owes almost $2,000 on her credit cards, her debt is still far below the average of most college students. According to national loan provider Nellie Mae, by the time college students reach their senior year, 31 percent carry a credit card balance between $3,000 and $7,000. "Credit cards are easy to get and college students can easily rack up debt if they aren't careful," says Nina Prikazsky, Nellie Mae's vice president of operations. "You have to have willpower to buy only the things you need, and not to charge more than you can pay back."

During their freshman year, students will receive dozens of offers for student credit cards, which typically have low credit limits and high interest rates. Many companies entice college students to apply for credit cards by offering coffee mugs, water bottles, T-shirts, and other trinkets. "I decided to apply because they were giving away free stuff," admits Karol Kaluga, a student at Portland Community College (Portland, OR). "I applied for one or two and later signed up for more."

Karol currently has five credit cards with a total of $10,000 in available credit, which he has used to pay for books and other college expenses, as well as a summer road trip. Though Karol says he does not carry a balance, he admits he has charged more than he was able to pay off in the past. "It's tempting to get as many cards as you can and use them," he says. "I applied for credit cards because I wanted to build a credit history, but I try to only charge what I can afford to pay off."

Good Intentions
Credit cards help you build a credit history, which is important when you want to buy a car, rent an apartment, and get a job. "It is a good idea to have one credit card with a manageable credit limit to demonstrate you are responsible," Prikazsky says. And, as Rhonda Stock discovered, having a credit card can also be useful for emergencies.

Rhonda received a credit card with a $500 limit during her freshman year at the University of Saskatchewan (Saskatoon, Saskatchewan, Canada). "For the first little while, everything was fine and I tried to use my credit card really responsibly," she says. "But during my last semester my student loan ran out and I started using my credit card to pay for gas, groceries, books -- everything."

The expenses added up, and Rhonda quickly reached her credit limit. She called her credit card company and had the limit increased to $1,000. A few months later, she called to have it increased again, but the credit card company denied her. "My credit card was maxed out and I had missed a few payments," she admits. For four months Rhonda avoided paying the power and phone bills as well as her credit card bill because she simply couldn't afford the payments. "It really put a dent in my credit rating," she says.

When Rhonda graduated she had accumulated $1,000 in credit card debt and spent five months paying it off. "I paid a little at a time and the balance slowly started to go down," she says. "It taught me that it's a lot easier to say you're not going to use your credit card than to actually not use it."

Rhonda says she was thankful her creditor didn't increase her limit. "I'd probably still be paying it off," she says. "Now when I use my credit card, I pay it off at the end of every month."

Carolyn has also learned a lot about using her plastic responsibly. "You shouldn't sign up for a credit card because you think it's easy money. You have to pay the money back," she says. "It's OK to use credit for something fun every once in a while, as long as you're responsible and can pay it off."

Credit Terms You Should Know ... and Obey!
The next time your credit card bill arrives in the mail, take a few minutes to study it. "Sit down and read the fine print," Prikazsky says. "Don't sign the back or call the number to activate the card until you understand [the fine print]."

If terms like APR, finance charge, and outstanding balance are confusing, read on to learn what they mean and how they impact your bill.

Outstanding balance: This is the total amount you owe on your credit card. Ideally, you should pay the entire balance off at the end of every month to avoid getting too deep into debt.

Minimum payment: The minimum payment is typically 2 percent of the outstanding balance; this amount must be paid at the end of the month. But by only making the minimum payment each month, your debt will continue to grow due to your APR.

Annual Percentage Rate (APR): APR is the amount of interest you will be charged on any outstanding balances, and may also be referred to as the interest rate. The APR on student credit cards averages between 9 and 14 percent.

Introductory rates: Some credit cards offer introductory rates to entice you to apply. Be sure to read the fine print because rates can and do change dramatically, thus costing you a bundle in the long run.

Finance charge: Also known as an interest charge, a finance charge is the amount of money the credit card company charges you on the unpaid portion of your bill, based on your APR. If you carry a balance, finance charges can really add up, making it difficult to pay off your balance and be debt free.

Annual fee: Finance charges are not the only way that credit card companies make money. Some companies charge yearly membership fees to all cardholders. Though most student credit cards do not require annual fees, those that do charge anywhere from $20 to $100 per year.

Credit limit: This is the total amount you can charge on your credit card. Most student credit cards have a credit limit of $500, and though it might be tempting to apply for several cards to have a higher available credit limit, sticking to one card with a lower limit will make it much easier to stay out of trouble.

Late charge: If you do not make at least the minimum payment on your credit card by the due date, the credit card company will levy a late fee. Late fees can equal as much as 2 percent of the outstanding balance. Making late payments can also result in higher interest rates and other penalties, so be sure to always pay your credit card bill on time.

Sound Off! Post Your Comments