Low Credit Card Payments

Posted by: Meredith K. | Dec 15,2007


I’ve painted the prospect of student credit cards as something of a disaster.  The average student credit card debt is just above $2000.  For graduate students it can be much higher, $4000-$8000.  The trade-off for graduate students, however, is that they’re more likely to get a better starting position so potentially less of an issue.   But when you look at the figures for credit card debt, it should not be as big a problem as it is.  

Even if a college student gets a credit card with a credit limit of $500 and an APR of 20%, the minimum on that bill, with a common 4% of the overall balance, is going to be somewhere around $25 every month.  In this day and age, who can’t afford $25?  It’s the cost of a date to the movies, in some places.  Well, this is where problems arise, as students are lulled into a false sense of what they’ll have to owe every month.  Suddenly, they get a letter in the mail saying their credit card limit went up another $500.  Cool!  Party!  Many college students dream and wait for the day to get that correspondence in their mailbox.  

OK, you’ve doubled your limit and are now looking at $50.  Post graduation, with the average $2000 balance, you’re looking at a $100 to pay out every month.  Even this amount may not seem to be that large, so they’ll continue adding to their credit card balance, taking on higher limits and higher balances, if not entirely new credit cards  

The problem with all these formulations is that monthly pay-out is not the only concern you should be thinking about.  Let’s set aside for a second the fact that you should be paying above the minimum every month.  The real damage in a high credit card balance is how much is lost to interest every month.  If you do, in fact, pay the minimum every month, your payments on that card could be double.  So a $10 meal bought a year ago might actually be $20 or even more.  Add to that the fact that a maxed out balance is terrible for a credit rating and these are the major issues that college grads should be focused on – not month to month payments, but the overall debt picture.  

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