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Provide your young adult children with straight talk about credit card debt
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It only makes sense that graduates starting their work lives with little or no debt, can concentrate on careers and families instead of stressing over unpaid credit card bills.
Unfortunately, the trends and indications regarding young adult debt are not promising. An April 2009 report from Sallie Mae, “How Undergraduate Students Use Credit Cards,” reveals that graduating college seniors had an average credit card debt of more than $4,100 – up from $2,900 just four years ago.
The first goal for any graduate who went into debt in order to survive while earning an education should be to eliminate all credit card debt – get out of it, and stay out of it.
The months after graduation are a particularly difficult time to reduce credit card spending. Peer pressure and the desire to keep up with the Jones’ is most intense among new graduates who, not surprisingly, want to break out of the student mode and begin to enjoy the good life.
The sweet siren call of the credit card companies
Good at what they do, credit card companies romanticize and encourage the concept that “Instant gratification means happiness.” That false premise has proved ruinous to millions of individuals and families.
The credit card companies’ greatest enemy is “thrift,” and they have been defeating their adversary for almost three generations.
Grandma knew best
Today’s graduates need to go back to their grandparent's era to hear strange tales of “lay away plans” and “saving to buy." Credit card companies want their customers to disregard such ideas as foolish and old fashioned.
There was a time in America when the average family saved money every week, and had a budget envelope to pay expenses. When the money was gone, the spending ended until the next paycheck arrived.
Grandma’s method of acquiring material wealth is simple and elegant. When an item is bought for cash, the financial obligation ends. The consumer enjoys the purchase, and looks forward to buying something else when more money is available.
Today, when a tempting discount – say 30% off – ends in a sale paid for with a credit card, the only way the buyer can actually realize the 30% savings is by paying off the credit card bill in full. If the consumer makes a minimum monthly payment, and continues to carry a balance for a year or two – the fantastic deal is completely lost. Pay interest long enough, and the item can actually end up costing twice the pre-sale price, or more.
The typical result of an “extended” credit card purchase:
- The consumer obtains the item
- The credit card company gains as much as the original purchase price in interest
- The buyer has less money to buy additional goods.
In effect, the consumer must defer the purchase of new goods in order to pay interest on things acquired, which may already be obsolete.
Credit card obligations can ruin careers
Debt easily becomes cumulative, and people under financial pressure are more likely to make bad career decisions. They may become job-hoppers in search of any little income gain that will help feed the interest monkey on their back.
Such people frequently take positions strictly for the pay, and without any regard to job satisfaction – a sorry and unhappy situation that can last until retirement.
Such people frequently take positions strictly for the pay, and without any regard to job satisfaction – a sorry and unhappy situation that can last until retirement.
Beat the credit card companies
It can be done, but it takes discipline. Go ahead – keep or accept a no annual fee credit card that offers ‘miles’ or a 1-3% cash back incentive. Just be sure to set up the credit card billing to link to a checking account that pays off the balance every month – in full.
The key is to keep sufficient cash in a checking account to retire the monthly bill, and if it runs short – stop charging on the credit card.
As parents, the sooner we can convince our children entering the work force to break the cycle of credit card debt the better.
We should encourage them to purchase what they need with cash equivalents, -- and avoid debilitating credit card interest. Their lives will be happier, and we can sleep better knowing we helped make that so.
Related Article: What is a secured credit card?
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