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CPAs give advice
on credit in college
COACHING YOUR COLLEGE-BOUND CHILD ON CREDIT
You think you’ve prepared your college-bound child for campus life
the importance of allocating time for proper studying ... the challenge
of eating nutritiously in the school cafeteria ... the consequences of
not separating laundry. But what about the growing problem of collegiate
credit card debt? Today’s college students are flooded with credit
card offers. Credit card companies visit campuses handing out applications
and free goodies. Cashiers often drop a credit card application in each
bag leaving the college bookstore. For many students, credit cards present
a temptation to charge far more than they can afford to repay. But, used
properly, a credit card can be a learning tool that provides convenience,
cash protection, worldwide merchant acceptance, an emergency source of
cash, and a head start on establishing a good credit history. The Georgia
Society of CPAs offers the following advice for helping your college-bound
student learn to manage credit wisely. BEGIN WITH THE BASICS Be sure to
stress that, except for emergencies, your child shouldn’t charge
more than he or she can repay at the end of the month. Let your child
know that when bills aren’t paid in full, the outstanding balance
accrues finance charges. Explain how it could take years to pay off even
a modest balance if he or she pays only the minimum due each month. You
can use an online calculator, such as that found at www.kiplinger.com,
to demonstrate how long it takes to pay off a credit card balance at different
payment levels. Finally, point out the fact that there is no need for
more than one credit card. The more cards he or she has, the more likely
that your child can get into financial trouble. TEASER RATES, APRs, AND
CREDIT CARD FEES Help your child comparison-shop for the best card and
warn him or her about “teaser” rates. A credit card -more-2
that starts with a six-month interest rate of 8 percent, then climbs to
19 percent after the initial period ends, is no bargain. Suggest that
your child compare credit cards based on what the annual percentage rate
(APR) will be after any initial offers have expired. Novice credit card
users also need to know that fees for late payments, over-the-credit-limit
fees, and cash advances can be substantial. For example, a student who
charges a CD and forgets to pay the bill could easily end up with a late
fee that exceeds the cost of two CDs. ESTABLISHING A CREDIT HISTORY When
it comes to credit cards, perhaps the most critical lesson of all is the
importance of building a good credit history. College students must understand
that their credit records, just like their transcripts, can have a lasting
impact on their future. Explain to them that credit bureaus keep track
of credit card holders’ payment histories and sell those reports
upon request to employers, landlords, lenders, and others that may need
to rely on that information in the future. PRACTICE MAKES PERFECT If you
would like to give your child a chance to practice before moving on to
the real thing, you can call your credit card issuer and request that
he or she be made an “authorized user” on your account. This
way, they get used to having plastic in their wallets, but they can’t
run up debt behind your back. When the bill comes in, let your child know
how much he or she owes and when payment is due to you. Whatever you do,
don’t forgive the debt, or grant a payment extension ó you
can be sure Visa and MasterCard won’t. A great credit card alternative
is a debit or check card. Issued by banks and credit unions, debit cards
operate similar to credit cards except that the money is directly withdrawn
from the cardholder’s checking account. For example, a debit card
that carries a Visa or MasterCard logo is accepted at any merchant or
restaurant that accepts Visa or MasterCard. But because the money comes
out of your account, there are no interest charges. Debit cards are safer
to carry than cash and more convenient than checks. CPAs say that the
credit management lessons you teach your children before they go off to
school are just as important as the education they’ll receive while
theyíre there. By properly educating them about -more-
3 the importance of financial responsibility, you help protect them not
only while they’re in college, but for years to come. The GSCPA is
the premier professional organization for CPAs in the state of Georgia.
With over 10,000 members throughout the state, the purpose of the GSCPA
is to promote the study of accountancy and applicable laws, provide continuing
professional education, maintain high ethical and work standards, and
provide information about accounting issues to the membership and the
public. For more information, access our web site at www.gscpa.org.
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