Debt, Credit Lessons for College Students

As a co-signer, you will also receive a monthly statement. Credit limits can't be increased without your approval. It is advisable to "opt-out" for over-the-limit coverage; then, any charge that puts your account over the limit will not be accepted. This avoids costly over-the-limit fees.

Sign up for online account alerts. You can receive a text or email when a payment is due, and if there is irregular activity in the account.

Students can also get a credit card if they have a job and can afford the payments. Credit card issuers give very little guidance in their terms and conditions about minimum income requirements or how they verify income. The definition of income also varies by issuer. Some include stipends, grants, and scholarships as income.

Debit cards: These cards are tied to checking accounts. Opt-out of overdraft coverage to avoid overdraft fees. Online account alerts can notify you when the account falls below a specified balance. Debit cards do not help build credit scores and there may not be a sufficient balance during an emergency.

Prepaid cards: These can be purchased anywhere, even grocery stores. However, they also have fees, so read the fine print before you purchase.

Secured cards: These cards have more fees and the interest rate is high, so pay it off each month. But secured cards are relatively easy for anyone to get because it is secured by a prepaid deposit. Make sure that the card reports to a credit agency. Secured cards from Orchard Bank and Public Savings Bank both report to credit agencies.

Credit card stats for college students: According to a Sallie Mae study, 84% of college students had at least one credit card in 2009, up from 76% in 2004. The average amount of debt carried by college cardholders is $3,173 which represents a 46% increase over the 2004 figure of $2,169. The average number of cards per student is 4.6. Only 17% pay off their entire balance each month and 22% make just the minimum payment.

Even though these numbers should drop because of the CARD Act, they still show the importance of talking with your students before they get into debt. The CARD Act does not remove this responsibility from parents.

Talk with your student about credit card debt: Parents should teach their student how to budget, spend wisely, and use credit. Start with your own credit card bill and use it to explain interest rates, grace periods, and minimum payment. Explain the high rates of cash advances and how to avoid these loans. Show them examples of how much they will pay in interest by only making the minimum payments. Tell them about the fees and penalty rates. Use online payment with reminders to help avoid late payment. Teach them to monitor their credit limit and if you must carry a balance, keep it under 30% of your credit limit.