It's Time to Talk Credit Cards With Your College-Bound Kid

NEW YORK (TheStreet) -- It's time for high school graduates to go off to college, moving away from home for the first time. As parents give last-minute lessons about independence, money management should be an important part of these discussions.

It is critical that the prospective college student know about budgeting money, staying out of debt and building a good credit score. This is also the time to talk with your college-age child about the payment plan for college tuition. College loans have become a major burden for millions of Americans, dragging students deep into debt before they even get started in the workplace. College students in the class of 2010 who took out loans to fund their college education owed an average of $25,250, according to a report from the Institute of College Access and Success.

Getting started

Parents should make a money management plan with their college-bound child. The plan should include how and when you will send money as well as how your child will pay the bills. Before they leave home, decide who will pay for the entertainment and incidental expenses.

Go over the basics of a checking account: making a deposit, writing a check, checking the available balance, using a debit card, balancing a checkbook, overdrafts, bounced checks and insufficient funds.

Payment options for students under 21

1. Credit cards

A student under the age of 21 can get a credit card if he or she has a co-signer, or has proof of enough income to make payments.

Co-signing should only be an option if your student can use a credit card responsibly.

If the student makes a late payment, it also shows up on the co-signer's credit report. A parent should make it very clear that the student can damage the parent's credit score if he or she does not pay the credit card bill. If the student can't pay off the debt, the co-signer is responsible for the entire debt.

Before getting your child a credit card, parents should pull out their own credit card statement and use it as a teaching tool about the dangers of paying with plastic.

Start with the interest rate and show how much more a purchase will cost if it is not completely paid off at the end of the month and interest is charged.

Show how long it will take to pay off a balance if you only make the minimum payment.

Point out where to look for the due date and the consequences of a late payment (including late fee, penalty rate and a lower credit score).

Warn about the high interest rate and fees for cash advances.

Show them how to set up payment reminders.

Explain that the credit limit is not a spending limit -- if you must carry a balance, keep it below 30% of the credit limit.

Explain which payments should not be made with a credit card.

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