Teenagers and parents are concerned with the teenager accumulating credit card debt as they rightly should be. With a high enough credit card debt it can take months or even years to pay off. It was found by William Stanford, an author of an article discussing students and credit card debt, that “Freshmen who rack up a $1,000 credit card bill and pay only the minimum amount each month will finish their college degrees, complete a master’s program, begin earning a living, and still have three-and-one-half years to go to finish paying off that freshman spending spree” (para 11). In other words, the spending that teenagers do in their first year of college, if irresponsible, can affect them for many years to come. This can affect what jobs they are offered, what kind of loans they can get, and what interest rates they can get on those loans. Teenagers need to be trained on how to spend wisely so they do not accumulate debt. When paying only the minimum amount of credit card debt, primarily what is being paid off is the interest that has accrued on the principal amount. This is why it takes so long to pay off credit card debt, because unless the consumer pays more than the minimum payment, the principal of the debt is only being reduced fractionally. While many believe that a person dealing with credit card debt just needs to buckle down and budget better, reducing expenditures and working longer, this is often times not the case. With the credit limits on most of these cards being extremely high, even the minimum payment can become extremely hard to deal with. There is only so much budgeting that a person can do with a limited income, based on their salaries. This is especially true for teenagers who do not yet have their careers. It is very difficult for a student to pay off credit card bills with the money they earn from part time jobs while they attend school. Teenagers need to be taught the responsibility to use credit cards correctly so they are not dealing with credit card bills as well as school. This is also only the minimum payment required to keep your credit score good. If a person were trying to pay off their debt quickly and pay more than the minimum amount of their bill each month, they would need an even higher income. Teenagers need to be aware of the consequences of their actions now, and how they can affect the future so they can use credit cards correctly. If payments are late a few times, or even once in some cases, it can negatively affect a student’s credit score. This makes it more difficult to get anything from store credit cards to loans in order to purchase a car or house. Additionally, if they do get the loans, a bad credit score will greatly increase the interest rate that they are required to pay in order to borrow the money. When my parents were applying for a loan to buy the house they currently live in, their credit score was good. However, even though it was from seven years prior to their applying for the loan, there was a note that they had previously had a bad credit score. Even though the details were not listed, the bank still forced them to explain that note before they would consider giving them the loan. It should be easy for anyone to imagine the kind of stress that they dealt with in wondering if they were going to get the loan for the house that they had fallen in love with. Had they used credit cards more wisely in previous years, they would not have had to deal with this speed bump in obtaining their loans. It is astounding that a bad credit rating can affect a consumer so far into the future. Without the proper training and responsibility, teenagers are likely to accumulate large amounts of debt that they will not be able to pay off and give themselves a bad credit score that will affect them for many years to come. However, with the proper responsibility and guidance teenagers can avoid large credit card debts and utilize the benefits of credit cards.
Image from: http://thebizguy.com/wp-content/uploads/credit_debt.png
Image from: http://thebizguy.com/wp-content/uploads/credit_debt.png