Before You Let "Joe College" Get His First Credit Card...
Now that I've told you how I feel about college kids with credit cards, let me admit the obvious: There are some of you who will simply disagree with my position on this issue. That's okay -- they're your kids. No one knows your kids like you do. If you feel like you can trust your college-bound student with a card, let me share a few suggestions on how to do it more responsibly:
1) Have a long talk. Discuss how credit cards work. Read the application together -- and, discuss the small print. This is a great time to teach one of the fundamental principals of adulthood: Never sign anything you don't fully understand. Help your son or daughter see what interest and penalty charges can do to a budget. Be fully aware of how many days you have each month to pay the bill without incurring those extra charges.
2) Place a spending limit on the card. You might be able to tie the amount of available credit to the amount in your child's checking or savings account. In any event, you may want to set a $500 or $1,000 spending limit on the card.
3) Review the billing records. Don't forget, you have a God-ordained mandate to invest yourself in your children's lives. Make it clear from the start that you expect regular reports on the card's usage. You might consider requiring that your son or daughter photocopy each month's invoice and send it to you. Does this mean you don't trust them? Sure it does! Think back, when you were their age, how much did you know about these things?
4) Pay every cent every month. If you do arm your student with plastic, at least make it clear that the first month he doesn't pay his bill in full -- the card gets destroyed! There's a reason for this. If your young person falls into the trap of making minimum payments -- he's hung. Bankrate.com computes that if a person makes just the minimum monthly payment on a $1,000 charge on a card that has an 18% interest rate, it will take more than 12 years to pay off that debt!
5) Have a clear understanding of what the card may be used for. I would suggest that you establish a written agreement listing what the card can be used for, and what it should not be used for.
6) Only one card. I know of no justifiable reason for a young person to have multiple accounts. It only adds to the confusion and temptation. One study showed that one fifth of all college students carry four or more credit cards. Folks, this is a disaster looking for a place to happen!
A Sensible Alternative: Consider a Debit Card Instead of a Credit Card.
