Recent College Graduate – Beware of the Credit Trap
Our oldest daughter recently graduated from college (1 down – 3 to go). She went West to get an internship that would help her get some certifications she needed. During her college years, our mailbox was full of student loan companies who made sure she knew they were there for her – to lend her what she needed to finish her degree. Now that she has a degree – our inbox is full of offers from credit card companies offering her the credit she “needs” to get her life on track.
I cut offers as fast as they come in the house. And I shared with her the trap these companies set for her and her contemporaries. Last week instead of shredding the offers – I let them pile up on my desk. We opened them up and the first few sentences of each letter were pretty impressive.
“You worked hard to get your degree and that hard work has earned you our respect…”
“Congratulations on getting your college degree. As you begin your professional life, you may need to rely on credit to get you started…”
“Great job. Let us reward you with a great opportunity to help you build your credit score…”
This is the normal way it ends for our young adults. As the offers come in, the recent graduate accepts a few – feeling great that their hard work is being recognized and with the noble goal of having the cards in case of an emergency. Card companies may advertise credit limits in the $1,500 to $2,000 range – but the reality is that once applications are submitted – unless the graduate has already achieved excellent earnings – in most cases they will be given a lower limit – in the range of $500.
Once they have the cards, the temptation to use them becomes almost impossible to resist. Maybe it’s an outfit, or a night out with friends, or even buying a gift for a loved one. The intention – as we all know – is always the same. “I’ll use the card to buy this…and pay the balance when the bill comes.” Then when the bill comes and the minimum payment is only $25 – most will pay the minimum because they have other cash flow needs that seem more important at that time. And this cycle repeats itself month after month.
Credit companies will start offering increases in credit limits over time. As they see that the payments are being made on time – that small limit of $500 – moves to $750 – then to $1000 – then to $1500. Move the clock forward 5 years and these young adults could find themselves in $20,000 plus credit card debt – paying minimum payments of $500 per month – and not actually making a dent in the principal. It’s a cycle of financial paralysis.
My suggestion to you is to share this with all the young adults in your circles. Make sure they know what’s at stake and why these companies are doing everything they can to get them into a revolving credit nightmare. Explain to these young adults the concept of “delayed gratification” – instead of what the credit companies offer – “instant gratification”.
Credit is important – no argument. But using credit properly and understanding the pitfalls is equally (if not more) important. Spread the word.
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