My daughter just turned 18 and passed a major right of passage. She now regularly receives credit card offers. Each of the credit card offers I opened up showed 30% or more annual interest. She doesn’t even have a job yet. Each time we receive one, my daughter and I have the conversation over and over to avoid spending money you don’t have (which becomes really easy with a credit card) …. and her response is, “yeah I know, you don’t have to keep telling me…”.
A credit card is a great way to start building a credit history — about 15% of your credit score is based on credit history. However, many of these young high school and college students may view credit cards as an opportunity to get things they otherwise don’t have money for …. which could lead them down the wrong path towards debt.
The Credit Card Act Helps Young Adults with Credit Cards
The Credit Card Accountability and Responsibility Disclosure Act (aka Credit Card Act) prohibits young adults between 18 and 21 years old from getting a credit card if they do not have 1) a job or 2) a parent co signer. This helped this young group make better decisions. The act also prevents credit card companies from coming within 1,000 feet of a campus if they are offering free gifts such as pizza other other items to try to entice students to sign up for a credit card.
College Students Rack Up The Debt
However, still college students with credit cards have an average debt of ~$500. Here are recent statistics by for young college adults who use credit cards and their debt:
- 18-20 yrs old: $611 debt
- 21-22 yrs old: $1,022 debt
- 23-24 yrs old: $1,109 debt
There’s variance in the debt based on public / private schools. As well as 2/4 year universities. Even the state that they live in.
Our view at YourFinances is that credit cards, used the right way, are a valuable tool to manage your finances and grow your credit history. However, if you cannot pay off your credit card at the end of the month, you should not use the card.
Paying Off Credit Cards Monthly
Always, paying credit cards off at the end of the month is the best way to stay financially healthy. There’s never a reason that you should be paying 20% or 30% on an annualized basis on the credit card loan. If you are tempted by the offer to spend more than you have then its possible a debit card may be a better choice.
As a key piece of a good financial program, we also believe in having a budget, low debt, and an emergency savings account.