Issue date: 10/15/08 Section: News

Media Credit: Martin Wood Credit card companies often target college students and lure them in with free gifts, leaving many in financial trouble by the time they graduate. [Click to enlarge]

As Sacramento State students finally start to settle into their familiar habits at school, they may ignore the habit that impacts them most after graduation. It's not the party habits or the work ethic they form; it's the habits of spending and saving.

Students often overlook money matters when going through college. Freshmen frequently get their first taste of owning a credit card, and if students do not know how to manage a budget and use credit cards properly, they can find themselves in more debt than they can handle.

Elena Larson, assistant director for University Collections and Student Loans, said credit card companies use things such as free items for applying for a card and low starting interest rates to draw students in. Generally, students are not careful enough to decipher the good deals from the bad.

One of the hardest traps for students to avoid is when credit card companies offer free clothes, frisbees and footballs to get them to sign up.

Kristin Van Gaasbeck, professor of economics, said students should never consider signing up for a credit card at a college campus. Research should be done before signing up for a credit card through resources such as the Federal Reserve system online. When students open a credit card, they sometimes forget that it is essentially borrowing money, and it is important to be well informed, she said.

"I always find it sort of surprising when students say, 'Sure, I'll give you my social security number, my home address, my name and my phone number to get a free t-shirt,'" Van Gaasbeck said. "Even if they don't sign up that day for a credit card, (the creditors) still have a way to contact them and a way to get in touch with them that makes it easier to give students the hard sell later on."

But credit cards are not inherently evil Larson said. She said there are a lot of good reasons to own one.

"Credit card companies understand students haven't really developed a credit history yet and you may not even have a job and you can still get a credit card. But if you were out of school and you didn't have a job or credit history then it would be harder to get a card. So we tell students that it's good to have as a way of developing a credit history for yourself," she said.

Signing up for a credit card allows for students to gradually build up credit, which is evaluated by a person's historical ability to pay debt, Van Gaasbeck said. Without that, a credit score cannot exist.

"Often times, if you choose the right credit card, they will put a low credit limit on and it's important not to max it out. Making payments on time and things like that make a huge difference," she said.

The key to managing your money the right way is to know yourself, your fiscal responsibility and your personal spending habits. Larson said the main problems with students and credit cards are "a lack of experience; students today don't even have checks and use a credit card instead, which makes it hard to keep track."

Laura Lee, senior child development major, thinks that some of the blame for students in debt falls on students' parents.

"I only buy things I know I can pay for because I was lucky. I grew up working for my money and managing it. My parents had a big role in teaching me about these kinds of issues," she said.

Some students believe that credit cards are their only option when they run out of money, but there are alternatives such as student loans.

"Student loans, especially subsidized ones, don't accrue any interest while you're in school, and even the unsubsidized ones give a much better interest rate than you'll find on any credit card," Van Gaasbeck said.

"Now of course, you're limited to what you can spend it on. You can't buy a car, but I think student loans are a much better form of debt than credit cards," Van Gaasbeck said. "If you're finding you're short every month and you qualify for that student loan, you're much better taking that out. Further down the road the interest on that debt is tax-deductible, whereas interest on a credit card is not."

The most important thing to avoid with student credit cards is only paying the minimum balance that's due, Van Gaasbeck said.

"Even if you're paying the minimum balance, you're still acquiring debt if you're not charging anything on it. I think the most important thing to do is pay off the balance or as much as you can," she said.

Students can receive counseling on these issues at the Financial Aid Office which also has a program called Your Money Matters at csus.edu/sfsc-ymm. Larson says the website includes information on developing savings plans, tips on saving money and the basics of establishing credit. Larson hopes that by learning about these subjects, students will gain more knowledge and less debt.

Tammy Nazanda can be reached at tnazanda@statehornet.com

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