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Credit cards can be a major source of financial hardship for students and recent grads.
Module Transcript
Throughout the course, we've talked a lot about the two kinds of debt many students have - education loans and credit cards.
The average college student graduates with nearly $4,000 in credit card debt, in addition to nearly $20,000 in student loan debt. And, according to some studies, 1 in 5 students graduate with over $10,000 in credit card debt - that's a monthly payment of over $200 - just to pay the interest!
Most credit card debt starts in the first year of school and increases every year until graduation. In fact, as many as three out of five first-year college students with credit cards max them out (meaning they used all available credit) within the first year.
Coupled with student loan payments, credit card debt can mean starting your life after college with a crushing financial burden - imagine not being able to afford a car or a decent home, just because of your credit card bill!
How could this happen to so many students?
From sign up tables on campus with free gifts to fliers inserted into bags at the campus bookstore - it's never been easier for students to get credit - even with no income.
Why do credit card companies target college students?
- First of all, companies race to be the first to get your business because people tend to stick with their first credit card for life.
- Second, college students spend a lot of money - nearly $100 billion per year - on tuition, clothes, food and entertainment.
So if credit cards are so bad, why not just use cash for everything? To a certain extent, using cash - especially for everyday expenses - is definitely the way to go. But at other times, you may not have the cash you need for an emergency purchase or you may need to buy an airline ticket or rent a hotel room - each of which is much easier with a credit card.
Like anything, credit cards can be used for sound and unsound reasons - for example, using credit for a financial emergency like a car repair far away from home would be a reasonable use of credit. But using credit cards when you're short on cash for dinners out, gadgets, and entertainment can be a dangerous game. As a general rule, if you can eat, drink or wear an item, it's usually not a good use of credit.
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