Debt Traps

Credit card representatives seem to be as much a fixture at UB as the tall, white columns at Baird Point. It's hard to miss their trinket-laden tables in the Commons, and the signs that promise a "FREE SUB" in big, red letters.

"They always seem to have a reason why standing around and signing up for a credit card is a better idea than going to class," said Christina Mihalitsas, a junior psychology and women's studies major.

Almost every building on campus displays little plastic receptacles that hold stacks of glossy credit card applications, and bulletin boards that are plastered with credit advertisements and invitations to apply.

If the average college student feels like a target for these giant credit corporations, they're right.

Credit card companies increased their solicitation spending to $5 billion in 2001, up from $1 billion just ten years earlier. Much of that is spent to specifically target college students, according to BAIGlobal, Inc., a market research firm.

"I think it's terrible," said Andrea Jacobs, a UB graduate and director of Jewish Student Life. "They're setting a terrible example for students. They should give away free subs to people who put $100 away in their bank accounts every month instead."

What is most dangerous, according to Professor of Finances Lew Mandell, is how fast debt can accumulate and how long students can remain stuck with it.

"Some students rack up tens of thousands of dollars in debts by the end of their college career," he said. "Students can go into bankruptcy."

According to Mandell, the Credit Research Center at Georgetown University claims the average balance of an active student credit card is $552. Nellie May, a student loan company, puts that figure much higher, at $1843.

It is possible that what helps keep those numbers so large is the high interest rate traditionally offered to new cardholders like college students.

The Citibank Student Mastercard is the one most prominently advertised on campus. The front of its pamphlet boasts a zero percent annual rate for six months. Next to that statement is a small but significant asterisk. The fine print at the bottom of the page informs students that the APR jumps to 14.24 percent after six months. Percentage rates can top out at above 20 percent.

Students say they have learned the hard way about interest rates, annual fees and late payment charges.

"I've gotten into trouble charging more things on the card than I had cash to pay for it with," said Derek Parks, a junior math major. "You learn quickly not to do that."

Still, the average college student graduates with almost $5,000 in credit card debt, according to Nellie Mae and more than 32 percent of students own four or more cards.

"I've had friends who had credit cards all through college and just paid the minimum," said Jacobs. "They thought they would get a job right out of college and pay it all off. You just cannot do that."

While the experts admit that credit cards are simply a fact of college life, they also urge students to remember that there are responsible ways to use them.

"The best way to use the credit card is to consider it as cash," said David Cho, assistant professor of finance and managerial economics. "Ask yourself whether you would make the same purchase using cash."

Many credit brochures go into great detail about why they believe students need to possess credit cards. One claim they make is that credit cards are essential to build a good credit history.

But according to Mandell, there are plenty of ways to create a healthy credit rating, and they have nothing to do with carrying a piece of plastic in one's wallet.

"If you pay your phone bill, your cable bill, and your cell phone bill on time, then you will develop a good credit rating," he said.

While the statistics regarding student credit debt may appear rather gloomy, many students at UB said they have managed to refuse the numerous credit offers they have received.

"I just said no and kept on walking," said Jared Shue, a freshman undecided major. "It's kind of shady if you ask me."

Others cite the good foundation of financial education they received before entering college, and say it has helped keep them from accumulating senseless debt.

"I've been taught about credit cards by my parents who made me terrified of being in debt," said Eli George, a sophomore undecided major. "I was taught to manage debt wisely."

According to Jacobs, paying cash for purchases now will give students much more freedom to spend later. She said the incentives companies offer for signing up, such as free food at Subway and free tee shirts, are definitely not worth it in the long run.

"Just fork over the two bucks for the sandwich," Jacobs said. "You'll be much happier than trying to pay off $2000 dollars in debt later on."

Read all application materials carefully -- especially the fine print. What happens after the "teaser rate" expires? What happens to your interest rate if you're late with a payment or fail to make a payment? What's the interest rate for a cash advance?

Consider using a debit card instead of a credit card. Money is deducted directly from your checking account, so you can't spend more than you actually have.