Debt can drain you

It took Tom, a television cameraman in his late 20’s, seven years of hard times and sacrifices after graduation to pay back the credit card debt he accumulated in college. No one had ever taught him how to use credit cards wisely.

Jenny, a 28-year-old who just filed for bankruptcy, says that it all started when she got her first credit card and a free T-shirt on her college campus. The card didn’t come with any counseling on how to use it wisely.

As a Next Step reader, you already know the importance of preparing for college. It is a major step on your journey to independence, adulthood, a successful career and a fulfilling life. You may think the list of what you have to learn and prepare for is already too long, but if learning to be financially literate and avoiding consumer debt is not already on your list, I urge you to put it there—and please, put it near the top.
Learning the fundamentals of finances—living within your means, budgeting, the true cost of credit, how hard it is to pay back debt, the importance of saving and investing and the advantages of being as debt-free as possible—are lessons that you simply do not want to learn the hard way. The consequences can be too severe. Now is the best time to learn the fundamentals of finances so that you can develop a sound financial philosophy and a successful financial plan for your future.

In the competitive consumption society that we live in, too many people live above their means because they want to keep up with everyone else, they don’t know the difference between wants and needs, they don’t budget and they have far too easy access to consumer credit that enables them to overspend.

When you see someone use a credit card, you have no way of knowing if they can afford what they are buying or if they are going into debt for it. In addition to the poor role models all around you, you are constantly bombarded with the wrong messages: “Buy now, pay later! Just do it!” Many of you may not even know if your own family is living within its means or deeply in debt.

I want to warn you about credit cards and urge you to resist the temptation to sign up for more than one of them while at college. Some of you may already have a credit card or have been getting offers in the mail. When you get to college, your parents won’t be there to tear up the offers that come in the mail or to help you resist the persuasive solicitations from fellow students on and near campus. Many of you will graduate with student loans, and you really can’t afford to have credit card debt on top of your loan debt. I hope that a high-paying job is there for you when you graduate, but it may not be. Countless people, many of whom are recent college graduates with overwhelming student loan and credit card debt, have this important advice for you: Stay away from credit cards, and learn to live within your means!

Here are some tips and techniques to start thinking about now. In the next issue, I will discuss in detail the true cost of consumer credit, the many consequences of financial problems that result from the abuse of consumer credit and why you should always have some savings for an emergency. I hope that the discussion will convince you and motivate you to stay away from consumer debt and follow today’s tips!

One credit card is all that you need for convenience or an emergency.

Having more than one credit card will not improve your credit rating. Don’t listen to anyone who tells you otherwise.

Having one credit card, staying within your credit limit and paying off the balance on time every month will prevent you from having to deal with late fees and over-limit fees.

Use cash, a check or a debit card as often as possible. If you can eat it or drink it, pay cash for it.
Students often end up with several credit cards and find themselves getting into debt with them because they want to continue to live the lifestyle they had at home or that wealthier friends enjoy. But on their budget, they can’t afford those lifestyles.

Don’t use your one credit card to pay for anything that costs less than $10.

Parents often think that you will be studying all the time, eating only in the cafeteria and basically living the life of the poor college kid the way they did. As a result, they may only give you the amount of money to live that lifestyle.

Start thinking about what your lifestyle at school will be. What will you need? Even the great philosophers and economists The Rolling Stones said, “You can’t always get what you want.” Talk with your parents about your budget before you go off to school. Everyone who goes to school in the northeast needs a winter coat. Does yours have to be an Armani?

Never put anything on your one credit card that you can’t pay for at the end of the month when the bill comes. If you do charge something, pay the bill in full and on time every month. You don’t want to start paying interest at the high rates charged by credit card companies. Paying interest will leave you with less money for other things you need.

Stay away from store charge cards. By doing so, you will spend less in the store. Store charges generally accrue interest on unpaid balances at higher rates than a major credit card would, such as Visa or MasterCard.
 

Judge Ninfo is founder of the Credit Abuse Resistance Education (CARE) Program, based in Rochester, N.Y., which teaches students the fundamentals of finances through live presentations given by bankruptcy judges and attorneys who deal with people with financial problems. The goal is to show you why you should choose to avoid consumer debt and the many consequences and financial problems that often result if you don’t. For more information, visit the CARE Program Web site at www.careprogram.us

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