As a college student I know it may be hard to resist the temptation for a
free tee-shirt to go along with your new credit card. But pass the shirt up
you must. These days it seems many students think it's required that they
get a credit card. It's not. The truth is undergraduates with limited
income have no business with a credit card. I want to hear from students
who have credit cards.
How do you manage the debt? Can you manage it. What
advice would you give others who haven't entered credit card hell yet.
Join personal finance columnist Michelle Singletary on Wednesday, Aug. 30 at 1 p.m. ET to talk about money smarts in college.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
________________________________________________
Atlanta Bound:
Hi Michelle
I'm a college student who doesn't have a credit card nor do I plan on getting one anytime soon. However, I do have a money question. I had a summer job this year and have most of the money I earned in a savings account. I most likely won't be getting a job when I go back to school. Once I get back I'll start spending that money, and with no job it's only a matter of time before that money is gone. I don't have any loans or debt to pay off so I was thinking that now is a good a time as any to start investing part of my paycheck in a mutual fund. I would not touch the money that I put in to invest. What would you suggest I do?
Thanks
Michelle Singletary: Well, hello out there. I'm so glad you could join me today. I'm so very interested in hearing from parents of college bound students and students themselves. So start sending in those questions.
Now for my Atlanta bound friend. First, I have to say this because I'm a mom and we like to say things like this. You should be very proud of yourself. No credit cards. Yeah! And a job. Yeah times two. Saving as well. You the man or woman. I think it's a wonderful thing that you are thinking about investing already. The best thing you have on your side is time. There are so many choices out there and I don't feel comfortable telling you where to put your money but I will say that think low-cost mutual funds. Perhaps an index fund or what's called a balance mutual fund. Now some advisors will shoot me for telling you to think index but these type of funds keep cost really low. After the chat on online and do a little research about both of these type of index funds. Go to www.investoreducation.org which is run by the Alliance for Investor Education. There you will find a entire section on investing in mutual funds. Also, keep in mind that when you invest you should only invest money you can afford to lose. So, make sure you keep enough of your savings to help pay for whatever expenses you need to cover while in college. Ideally, you should have 3 to six months of living expenses saved, if you can.
________________________________________________
Fairfax, Va.:
I loved your last column on college kids and finances. I was stunned how many kids had credit cards when I first went to college, and that was 10 years ago (I imagine it's many more these days). My parents had instilled in me a fear of debt, so I had no desire to get a card--I just used cash or checks.
BUT one good piece of advice my mom gave me, and I'd like to share it with you, was to go ahead and get a card while I was in college, since it WAS so easy for college students to get one, whereas the longer you've been out of college, the harder it is to get one. Plus, she wanted me to start establishing good credit. So my junior year, I picked out a card with no annual fee. It probably had a really high interest rate, but I didn't care (and still don't) because I always paid off my balance in full every month. And the importance of having good credit established at such a young age hit home for me when I had an internship in a different city one summer. I had to set up a phone line for my apartment, and the woman from the phone company was very impressed with my credit record, so I didn't even have to pay any sort of deposit.
washingtonpost.com: Don't Major In Debt (Post, Aug. 17)
Michelle Singletary: Sounds like your mom was pretty smart. However, can I tweak her advice just a little. Clearly, she taught you well so you were discplined enough to stay out of credit card trouble. Other students are so fortunate so I would still advise that they not get a credit card until they have completed college and landed a full time job. It's just not true (anymore anyway) that it's hard for a graduating or graduated college student to get a credit card. Everybody and their mama (and dog and little child--for real that's happen) can get a credit card. And it doesn't take long to establish good credit.
________________________________________________
Washington, D.C.:
Michelle-
I graduated college 3 years ago with tens-of-thousands of dollars in student loans. I'm going back to graduate school this fall and I am taking out new loans. Is there anyway for me to consolidate my new loans with ones I had already consolidated from my undergraduate studies to lock-in today's lower rates?
Michelle Singletary: In fact that is the only way to get the new low rates. You have to have new federal student loans in order to be able to roll them in with loans you have already consolidated. But please be aware you won't necessarily get the low, low rate. At present, when you consolidate you lock in the weighted average of all your student loans, rounded up to the nearest eighth of a percentage point.
________________________________________________
Bethesda, MD:
Michelle, I have always wondered why you recommend buying a used car? In December we went looking for a used Accord for my husband. A 3 or 4 year old used car with about 40,000 or so miles was around $12,000. This was for a non-certified used car, and each had some minor cosmetic problems in addition to the mileage. A 1-year warranty was another $1,000. But we saw so many deals being offered on new cars we decided to look, and for $17,500 we got a brand-new Accord with a 3 year warranty. To me, the $4,500 seems worth a new car, just for the extra 4 years it will last us (being 3 or 4 years newer with no mileage) plus the 3 years of the warranty instead of one. Then there is the added bonus of not having to worry about whether it was in anaccident or other problems that don't show up on the Carfax. As I said, seems worth the extra few thousand, so I am just wondering about the genesis of your advice on this issue. Thanks.
Michelle Singletary: Well, it's all in how you look at it. From where I'm sitting $4,500 is a lot of money. And did you add the cost of the interest charges on an extra $4,500. Used cars are so much better than they use to be. The last few cars I had to purchase have all been used and my husband and I haven't had a bit of trouble. Look, you did what was best for you. All I ever tell people is to get what they can afford. If you can afford that extra $4,500 plus the cost of the interst than you did what was good for your pocketbook. But for many people a used car makes better economic sense. Like with anything you have to shop around and do your research. But honey, the used car market isn't like your father's old used car market anymore. There are lots of great deals out there especially as a result of all the knuckleheads that lease.
________________________________________________
RE: Washington, D.C.:
In response to your earlier answer about reconsolidating loans. Should I take out the maximum amount of loans, even if I don't need it, so that it brings down the rate (because it's a weighted average and the bulk of my loans are at the higher rate)?
Michelle Singletary: What? No. Why would you borrow more than you need? Listen, borrow what you need and no more.
________________________________________________
Fairfax, Va.:
Michelle,
I work for a company who will pay me to go back to school. I'd love to take them up on the reimbursement option, but I'd have to lay out the $2,000 and then get reimbursed at the end of the semester. I don't have an extra $2k lying around to give up for six months.
Any suggestions?
Michelle Singletary: Save up the $2,000 and when you have it go back to school. I had the same deal with my previous employer but once I paid that first semester the money they reimbursed me went toward the next semesters.
________________________________________________
Fairfax, Va.:
I attend college and have a credit card. Without the credit card I would be in bad shape. Although I work 80 hours a week at $5 an hour, the money I make barely covers food, rent and utilites.
Transportation, clothes, PC hardware & software (required for school), textbooks, health insurance, and tuition dollars come from grants, loans and the credit card.
The kids who have parents who help them out are at an enormous advantage. Those of us who are on our own are really struggling. These days, without the credit card it would be impossible for me to meet my cash flow obligations towards a degree. My gut feeling is that kids who have parents who pay their tuition and rent don't need credit cards. But kids who have to figure out a way to do it all on their own will probably need to use them once and a while.
Michelle Singletary: There is such a huge flaw in your financial logic. You my dear are in bad shape already. If you HAVE to use the credit cards to make ends meet you SHOULDN'T be using the credit cards. It means you don't have enough money coming in, which means you don't have enough money to pay off those cards to avoid all the money you will spend on interest. Listen, I grew up poor and even tho I had a full scholarship I had to work to have money for other things I needed. Stop leaning on the credit cards. Get a roommate. If you have one, get two. Move back home, move to a lower cost area or transfer to a school that cost less. You are working yourself into a trap that is very dangerous. Plently of students who don't have parents paying their way in college get along without using a credit card.
________________________________________________
Silver Spring, Md.:
Michelle,
I would have to disagree with you that it's easy to get a credit card after college. Every time that I've applied for credit after college I was turned down (this was in 1996-98) because I had no credit history. I was sort of job hopping and trying to figure out what to do with the rest of my life (like many other recent grads), but doing fine financially: no debt, with $8000 in the bank. It didn't matter at all. It wasn't until I went back to grad school that I was able to get a credit card.
On one hand, it might have been good that I didn't have a credit card, since I wasn't at all tempted to rack up debt during that time. On the other hand, I had absolutely no back-up for when I was travelling. On one of my internships when I was living away from home, the bank machine ate my ATM card - I had $5 in my pocket (just enough to get back to where I was living) and a loaf of bread in my room. I was down to the last crust by the time my parents could get my new ATM card to me (I hadn't brought my checkbook on my internship because I figured that no one would take out-of-state checks).
Really, everyone who travels or who owns a car (every adult basically) should have a credit card for emergencies.
Michelle Singletary: Disagree all you want but again I say if you are in college and have a limited income DON'T GET A CREDIT CARD. You actually proved my point. You eventually got a credit card. So you could get one just not when you WANTED one. If you have to have one following college and having a little trouble because you aren't employed steadily (as you indicated which may be why they didn't giv eyou one) then get a secured credit card. With $8,000 in the bank you could have pledged $500 of that money to back a secured card meaning you couldn't spend more than $500. After a few months you would have qualified for a regular credit card. In this society we have become crazy with the idea that you can't live without credit. Nonsense.
________________________________________________
Burtonsville, Md. :
At 22 I have already accrued a decent dent in my pocket. (around 4k) and I am struggling to pay for my college-by myself. Although I work and support myself- and have a well paying job with the Dept. of Homeland Security- I will still need assistance for my last 2 years of undergrad- however FASFA. Will not acknowledge me as "independent" from my parents until I am 24. FYI, My father works for Bechtel and is in Iraq- and my mother lives out of state and is out of work- and hasn't done taxes for years. It is not fair- I support myself- I am single with no children -and I can't be considered independent? Is there any way around this? Also does bad credit affect receiving student loans, grants or other types of aid?
Michelle Singletary: If I were you I would contact FASFA and talk to a live person. I'm not completely sure you have to wait until you are 24 to qualify for aid on your own. Maybe they won't let you be independent because your father is still claiming you on his taxes. Ask some more questions. If all you say is true than you may just have to wait until you can afford to continue your education. And, yes bad credit can affects lots in your financial life -- getting loans, getting car insurance, getting another job.
________________________________________________
Washington, D.C.:
I had a credit card in college, but it only had a $500 limit. I got a special "student credit card" through my parents' bank, and avoided the free T-shirt and other trinket offers. My parents felt it was important for me to have access to a small amount of credit for emergencies, as they were on an overseas work assignment while I was in college and couldn't otherwise help me out.
It was hard to get into too much trouble with a $500 limit. I charged a small amount each month (usually less than $50) in order to start building credit and paid off the balance each month. I never used credit to pay for things I couldn't afford, just as a convenience from time to time.
I do think that students can use credit responsibly, but that credit limits should be quite low (the $500 limit certainly worked for me) to avoid accumulating large balances that could be a burden for years to come. In addition, students should avoid the temptation to get multiple cards. If you want a T-shirt, clock/radio, etc. then buy one - don't risk getting into thousands of dollars worth of trouble.
Michelle Singletary: If you must have a credit card (am I talking to walls here) as a college student than certainly your advise rings true. Get a card with a low limit, charge just a few low-cost items and pay off the bill every month. In that case you are right that you will be creating a good credit history. But again, not enough college students have the self control that you do. And you are right again, who needs another tee-shirt?
________________________________________________
Somewhere, USA:
I'm well aware of how dangerous credit cards can be, especially for students. And, of course, the credit card companies distribute applications like drug dealers on a playground. One almost wonders if there should be legal restrictions on this practice. (After all, we have seat belt laws and countless other rules to protect people from themselves.)
However, don't you think that saying "no credit cards" may be going a little far? ONE credit card, with a low credit limit, can make life an awfully lot easier in the world we live in.
Michelle Singletary: Is saying "no credit cards" for college students going to far?
No
Nope
Ne
Naw
Nein
Nahin
Nei
Naaga
One credit card with any limit can spell trouble for college students with little to no income.
________________________________________________
Silver Spring, Md. (again):
All I can say is that I'm glad that I did eventually have a credit card when my car broke down 100's of miles from home and needed a new transmission ($2400K + cost of a rental car)....and yes, I had properly maintained my car.
If my child travelled or was away for the summer on an internship, I'd want her to have a credit card. Even thousands of dollars of credit card debt are better than hitchhiking, nowadays.
Michelle Singletary: You people are headheaded. If my child traveled away and his or her car broke down I would have cash to pay for the repairs. I wouldn't want them to go into debt while they were in school. And it's not a choice between hitchhiking and being in debt. It's a choice between being fiscally sound and hitching your way thu life using credit cards to pay for what you can't afford.
________________________________________________
Ballston, Va.:
Hi, Michelle -
This is slightly off topic, however, my 20-yr. old stepdaughter feels she needs to have a car, in part to facilitate volunteer work she does for one of her scholarships. She also argues it would be easier to get a job. Now, we have found a used car that would suit her, however, she doesn't have enough money saved to purchase it out-right.
We help with as much tuition/expenses as we can, and are both unable and a little unwilling to give her the car out-right. Would it benefit her to have us buy the car, then have her pay us monthly for the 10 months or so needed to pay us back? Or, should we encourage her to save until she has enough to purchase a car herself?
Thanks!
Michelle Singletary: Well, you know yor stepdaughter better than me. It's great that she's volunteering and if the car would help sounds fair. But -- and this is a big but -- does she really, really need the car or is she using the volunteer job to get a car she can't yet afford. If you think she will pay you back then perhaps it makes sense to buy the car for her. If she was sharp enough to get a scholarship and is volunteering she sounds like a good kid and worth the effort.
________________________________________________
Washington, D.C.:
Michelle-
I have been out of college for 3 years and haven't started contributed to my 401k yet. I've been paying off student loans and have other expenses. I know that I should start saving for retirement though. How much should I contribute? Can you recommend any good resources for figured out what funds to invest in?
Michelle Singletary: If your company matches your contributions to your 401 (k) plan try as best you can to contribute enough to get the match. Otherwise you are leaving money on the table and it hurts my financial heart to hear anyone leaving money on the table. As far as what to invest in I can't tell you that. You should look at the funds available thu your plan and choose those that will give you some good diversification (cash, bonds, stocks).
________________________________________________
Washington, D.C.:
Michelle, Not still a college student, but just out. I have a credit question for you. I am very concerned with keeping my credit spotless and building good credit so that in a few years it will be easy to buy a house. However, how important is it to get credit reports from the three main agencies? Should I do it once a year? Less often? Also, is it worth it to pay their fees to receive the credit report or is there a way to receive my report or score for free?
Thanks so much for any help. These things can be so confusing when you are just starting out!
Michelle Singletary: You should get your credit report at least once a year from all three bureaus -- Experian, Equifax, TransUnion. Once a year you might also get your credit score from one of the bureaus. It will cost you about $12. The reports will cost you about $9 each. If you live in Maryland you can get your reports from each for free once a year.
________________________________________________
Washington, D.C.:
I am a grad student with a credit card. I paid off the credit card before i went back to school but have unfortunately managed to accrue another large balance on the card. I want to use some of my financial aid to pay off the debt (from what i will have left over from this coming semester) since i graduate in January. Is this a wise decision or should I keep paying it month-by-month until i get a job after graduation when i will also have to start paying off my student loans in addition to my credit card debt? Also, if I should pay off the balance in full before graduation, should I do it at the beginning of the semester when I have the money or wait until the end of the semester?
Michelle Singletary: Lots of questions here. First make sure you use your financial aid to pay all your school expenses first. I'm not sure what aid you have but don't borrow more than you need for school-only expenses. If you have aid that is due you regardless of your actual school costs I might wait until I have graduated, landed a good job and then use the extra funds to pay off or down the debt since it's likely the interest rates on the aid amount (assuming it's a loan) will probably be lower than what you are paying on the credit card.
________________________________________________
language class:
You forgot
nyet (Russian)
nao (Portuguese, with a tilde over the "a")
Seriously, I think you've convinced me.
Michelle Singletary: I could have gone on longer with the foreign nos but you know had to get to other questions. But at least you got my drift!
________________________________________________
One credit card:
Your comment about one credit card can spell trouble to a student with little to no income is just as true for people who DO have an income! As someone who has racked up thousands of dollars in credit card debt (and is old enough to know better), it takes years longer to pay off than it does to rack it up. I could cry when I think of the interest this will cost me in the end. And now, I'm cash all the way.
Michelle Singletary: Preach!
But don't beat yourself up. What's done is done. Just concentrate on building back up your credit.
________________________________________________
Washington, D.C.:
I have to disagree that it doesn't take long to establish good credit. I'm buying a house and one of the things that affected my credit score was the average age of my credit history was only 4 years.
Michelle Singletary: Disagree if you like but in I'm still right. I don't think cash-strapped college students should get a credit card because they are worried about building up good credit to buy a house. I was able to buy a condo two years out of college with essentially one charge card-- an American Express Card. If you are in college you have time to establish good credit. I'm not sure how old you are or how long you've been out of school but there are many, many factors that go into your credit score.
________________________________________________
Showing my age:
There was this one episode of "The Facts of Life"
where Mindy got a credit card and ran up a huge
debt and could barely make her minimum payments.
Of course by the end of the plot line she cut up her
card, etc. For some reason that has always stuck with
me and I'm very careful to pay off my card every
month.
Michelle Singletary: I won't admit I'm old enough to have actually seen original episodes of "The Facts of Life" but the fact of life for many students is they are getting way over their heads in credit card debt. It's not a good way to start off your working life following college especially with salaries what they are in many fields these days.
________________________________________________
Washington, DC:
When I was in college (over ten years ago), I had a credit card with a very low limit. But my senior year I charged a plane ticket to go visit a friend. Well, I probably spent 2 years paying off that ticket and paid twice as much as the original price. The one advantage of that experience is that I never carry credit card debt now. I pay the card every month. So at least I learned a good lesson.
Michelle Singletary: Good for you!
________________________________________________
No Debt USA:
Credit cards are ok if you follow rule #1:
Don't use it unless you are sure you will be able to pay the entire bill the day it arrives in the mail.
Michelle Singletary: The #1 rule of credit cards for college students: Don't use them at all.
Am I sounding like a broken record, your papa, yo mama.
Good!
It's not enough to say it's okay to use it and pay it off when the bill arrives. Sometimes even then people charge stuff they don't really need because they can put it on their card rather than pay cold hard cash for it.
Well, that's it for me today. I'm all fussed out. Come back real soon.
________________________________________________
washingtonpost.com: That wraps up
today's show. Thanks to everyone who joined the
discussion.
________________________________________________
