College Students and the Debt Trap

Young men and women get exposed to a lot during their first year at college. Alcohol. Parties. One thing that you may not instinctively put as high on the list but can be just as dangerous is credit cards.

College is often times a young person's first foray into the world of credit. With a lack of personal financial education available in schools (both high school and college), it's not surprising that a substantial number of students quickly rack up a mountain of credit card debt with little, if any, means of paying it off. Some students view a credit card as "free money" instead of as a means of responsibly handling financial transactions.

No parent wants to see their kid amass thousands of dollars in credit card debt by the time they graduate but as a parent you have a responsibility to teach your children to be liable for their actions. What can parents realistically do to teach their children to be accountable when it comes to personal money management and credit card debt?

1. Educate - There's probably nothing better you can do to help out Junior than to teach them that credit cards are not akin to free money. Sit down with your college student and explain to them credit card debt is just that - debt. If you rack up debt now, you'll have to pay it back later and probably more once interest charges are tacked on. Teach them that they should spend no more than what they have. Colleges are slowly getting better at providing personal finance courses to help manage credit card debt. It would be wise for your child to enroll in one.

2. Set Spending Limits and Restrictions - If you give your college student a credit card and tell them to use it only for emergencies, you'll probably get widely different definitions as to what an emergency actually is. Set limits for what the credit card can be used for - tuition, books, car expenses. Then explain what it can't be used for - new clothes, drinks, eating out with friends. If they want to spend money for those things, it comes straight out of the bank account.

3. Use Student Credit Cards - If you need to give your college kid a credit card, make sure it's a student credit card. These have low debt limits like $500 and can stem the spending before it gets out of hand. Many banks offer these now and they're great for managing your child's debt.

4. Use Prepaid Debit Cards - These work similarly to credit cards but instead allow you to load a specific amount on to the card. Your college student can use it for anything but once the card is empty, it's empty. Another good way of limiting the debt your child can accumulate if you want to stay away from a credit card altogether.

Your college student's first credit card doesn't have to be the beginning of a downward spiral into out of control debt. Education will always be the key. Make sure your child knows what responsible money management is and while that can include credit card debt it shouldn't include reckless spending.

College should be a fun experience for everyone. It shouldn't include a mountain of credit card debt when it's finished.