EXTRA CREDIT YOU CAN LIVE WITHOUT

Anna Martinez

California State University–Fresno

Anna Martinez selected student credit card debt as the topic of her persuasive speech. Based on her survey of the audience, she determined that it would not be feasible to argue that students should not use credit cards. She selected a different thesis that was within their latitude of acceptance—encouraging students to be more careful credit card consumers.

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Anna’s speech is targeted to an audience of college students, and she refers to information gleaned from her survey to support her points. Anna consistently uses evidence to support her claims, and she has organized her speech in the problem-cause-solution format.

There is a dangerous product on our campus. It is marketed on tables outside the student union and advertised on the bulletin board in this classroom. Based on my audience survey, it is likely that most of you have this product in your possession right now. By the end of my speech, this product may be costing you more than it is right now. This dangerous product is credit cards. •

Today I would like to discuss the problems created by college students’ credit cards and hopefully persuade you to be a careful credit card consumer. If your credit card situation is anything like mine—and over two-thirds of this class indicated that they are currently carrying a balance on one or more cards—take note: you can save money.

My husband and I paid for our own wedding. More accurately, we used our credit cards to charge many of our wedding expenses. And thanks to Visa, we are still paying for our wedding every month! We have saved money with some of the suggestions I will present today, and you can do the same.

To that end, let’s cover some of the problems created by students’ credit card debt, then analyze causes of the problem, and finally consider steps you can take to be a careful credit card consumer. •

We’ll start with a look at the problems created by these “hazardous products.”

Credit card debt on campus is a significant and growing problem. Many students have credit card debt. According to Matthew Scott, in Black Collegian, April 2007, “College financial aid provider Nellie Mae reported that 76 percent of undergraduate students had credit cards in 2005, with an average balance of $2,169. An alarming 25 percent of undergraduates had credit card balances totaling $3,000 or more.” In Business Week, September 5, 2007, Jessica Silver-Greenberg notes that “the freshman 15, a fleshy souvenir of beer and late-night pizza, is now taking on a new meaning, with some freshmen racking up more than $15,000 in credit card debt before they can legally drink.” If you are not sure how your own balances compare, you are not alone. The previously mentioned Nellie Mae study found that the average balance reported by students was 47 percent lower than the average balance computed from data provided by credit bureaus. •

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High credit card use can change our lives for the worse. According to the April 2007 Black Collegian article, Rhonda Reynolds of Bernard Baruch College built up $8,000 worth of debt and was unable to make even the minimum payment. Her account went into collections. Business Week, March 15, 1999, provided another example: Jason Britton, a senior at Georgetown University, accumulated $21,000 in debt over four years on sixteen cards! Jason reports, “When I first started, my attitude was ‘I’ll get a job after college to pay off all my debt.’” Then he realized that he was in a hole because he could not meet his minimum monthly payments. He had to obtain financial assistance from his parents and now works three part-time jobs. •

You probably do not owe $20,000 on your credit cards, but even smaller balances take their toll. Robert Frick, associate editor for Kiplinger’s Personal Finance magazine, March 1997, states that if you make the minimum payments on a $500 balance at an 18 percent interest rate, it will take over seven years to pay off the loan and cost $365 in interest.

High credit card debt can also haunt your finances after you graduate. Matthew Scott, previously cited, notes that credit bureaus assign you a credit score, which is “your economic report card to the rest of the world.” That score will “determine the interest rates you pay for many forms of credit and insurance.” He also notes that prospective employers will check your credit score and use that number to decide whether or not you are responsible.

Many people in this class are carrying student loans, which will need to be paid back upon graduation. When you add credit card debt to student loan payments, rent, utilities, food, the payment on the new car you want to buy, family expenses, and so on, the toll can be heavy. Alan Blair, director of credit management for the New England Educational Loan Marketing Corporation, in a 1998 report on the corporation’s Web site, notes serious consequences for students who cannot balance monthly expenses and debts, including “poor credit ratings, inability to apply for car loans or a mortgage, collection activity, and at worst, a bankruptcy filing.” •

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Don’t let this happen to you. After all that hard work earning a degree and finally landing a job where you don’t have to wear a plastic name tag and induce people to get “fries with that order,” the last thing any of us needs is to be spending our hard-earned money paying off debt, being turned down for loans, or, worse yet, being harassed by collection agencies.

Credit card debt is hazardous to students’ financial health, so why are these debts piling up? Let’s move on to the causes of this problem. •

The reality is that credit card issuers want and aggressively seek the business of students like ourselves. As Jessica Silver-Greenberg writes in her previously cited September 2007 article, “Over the next month, as 17 million college students flood the nation’s campuses, they will be greeted by swarms of credit-card marketers. Frisbees, T-shirts, and even iPods will be used as enticements to sign up, and marketing on the Web will reinforce the message.”

Card issuers actually troll for customers on campus because student business is profitable. Daniel Eisenberg, writer of the Your Money column for Time magazine, September 28, 1998, notes that “college students are suckers for free stuff, and many are collecting extra credit cards and heavier debts as a result.” Eisenberg refers to a U.S. Public Interest Research Group survey, which found that students who sign up for cards at campus tables in return for “gifts” typically carry higher unpaid balances than do other students. Jessica Silver-Greenberg, in an October 15, 2007, Business Week article, writes that “college kids are a potential gold mine—one of the few growing customer segments in the saturated credit-card market. And they’re loyal, eventually taking three additional loans, on average, with the bank that gives them their first card.” •

Companies use “sucker rates” to induce students to apply for credit. Business Week, March 15, 1999, writes that “credit card marketers may advertise a low annual percentage rate, but it often jumps substantially after three to nine months. First USA’s student Visa has a 9.9% introductory rate that soars to 17.99% after five months. Teaser rates aren’t unique to student cards, but a 1998 study by the Washington-based U.S. Public Interest Research Group found that 26% of college students found them misleading.”

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So it appears that credit card companies will not stop demanding student business any time soon. What can we do about it?

My proposed solution is to be a careful credit card consumer.

Why not get rid of your credit cards before it’s too late? All right, maybe you won’t go for that solution. My survey indicated that most of you enjoy the flexibility in spending that credit cards provide. •

So here are some other ways you should be credit card smart. One practice is to shop carefully for the best credit card deals. The companies that are not spending their money giving away pizzas and iPods on campus may be able to offer you a better deal. In her September 7, 2007, Business Week article, Silver-Greenberg recommends that you beware of offers from South Dakota or Delaware corporations. Those states are “considered ‘safe harbors’ for credit card companies because they have no cap on interest rates or late payment [fees].”

A second solution is to read the fine print on credit card applications to learn what your actual interest rate will be. Alison Barros, a staff writer for the Lane Community College Torch, October 29, 1998, quotes Jonathan Woolworth, consumer protection director for the Oregon Public Interest Research Group, who wrote that “students need to read the fine print and find out how long those low interest rates last. Rates that are as low as 3% can jump to 18% within three months, and the credit card company doesn’t want the student to know that.”

Here is an example of the fine print on an ad that begins at 1.9 percent and soon rises. If you read the fine print, you note that the rate can rise to more than 20 percent. •

Third, even if you can only make the minimum payment on your cards, pay your bills on time. • Silver-Greenberg’s September 5 article indicates that students’ “credit scores can plunge particularly quickly, with one or two missed payments, because their track records are so short.” She further cautions students to be aware of “universal default” provisions in their credit agreements. These provide that if you miss a payment on one card, other credit card companies can also raise your interest rate (even if you have paid those cards on time), perhaps to 30 percent. Business Week, March 15, 1999, cautions that “because students move often and may not get their mail forwarded quickly, bills can get lost. Then the students fall prey to late fees.” •

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Finally, you can keep money in your pocket and out of the credit card company’s by paying attention to your credit report. If any agencies are “talking trash” about you with inaccurate information, be sure to have it corrected.

To sum up these solutions, even if you do not want to stop using credit cards, there are many ways to be a careful credit card consumer. Shop for a good rate, and be careful to read the fine print so you know what the rate really is. Know what you owe, and take the responsibility to make payments on time. •

This morning, we have learned about a hazardous product on campus—credit cards. We have noted the problem of high student credit card debt, analyzed some of the causes of this problem, and considered several methods for being a careful credit card consumer. •

If your instructor offers you a chance for extra credit in his or her class, take advantage of the opportunity. But when a credit card issuer offers you a free T-shirt or phone card if you will sign up for their extra credit, just say no. When you pay off a credit card with a 19.9 percent interest rate, that “free” T-shirt could turn out to be the most expensive clothing you will ever buy. •