Should you send your child off to college with a credit
card? Opinions are divided, both among parents and financial advisors. It's a
situation that can work out really well or really badly, depending on the
student and the parents.
At its best, everyone benefits from giving a student a card.
The student uses the card for budgeted expenses, pays off the balance each
month, and starts building a good credit history. The parents sleep better
knowing the student has a credit source in case of emergencies.
At its worst, the student is unused to managing money or
living within a budget. The student fails to make payments on time, incurs high
interest charges, and ruins his or her credit history. The parents have to step
in to bail the student out.
Among the risks:
* Lack of experience in managing money can lead a student to
overspend or to neglect making payments on time.
* Peer pressure may encourage a student to spend on
entertainment or clothes, just to keep up with friends.
* Failure to agree on a budget beforehand can result in
shock when you see your student's monthly statement.
* Parents co-signing for the card can put their credit
scores at risk, too.
* Loss or theft of the card can lead to problems that take time
to resolve.
To minimize risks:
* Set ground rules for use of the card. Agree on what it may
and may not be used for. Put the agreement in writing and have the student sign
off.
* Establish a budget. Talk regularly about how your student
is managing his or her expenses within the budget.
* Consider alternatives to a credit card, at least for the
freshman year. Consider using a prepaid credit card, or set up a checking
account with a debit card. That allows the student to gain experience managing
expenses within a budget.
Finally, remember you may have no say in the matter.
Students are bombarded with credit card offers as soon as they enroll. Card
companies are usually happy to issue a card to any student over age 18 in his
or her own name.
No comments:
Post a Comment