Avoid the College Credit Card Trap

August 2022 1

Dan Leonard, Lead Planning and Trading Associate

College is a formative time in the lives of those who choose that path. For many, it is their first taste of life away from their parents and their first experience of true autonomy. After four years, most college graduates would tell you that the lessons outside of the classroom can be just as valuable as the curriculum taught in the classroom.  

College is where most of us developed our taste for Ramen noodles and our ability to achieve life’s larger ambitions. Surprisingly, these two things are not unrelated. One of the greatest benefits of college life is that, outside of tuition costs, expenses are generally low. The converse of that is, unfortunately, the demands of the classroom and the need to study often limit a student’s ability to bring in income.  

The presence of wants that outpace income is the bat signal that calls out to credit card companies. Although despite what they tell you, these individuals tend to behave more like the Riddler than the Dark Knight. Cryptic messages and deceitful tactics are among their tools to get unsuspecting college students to fill out a credit application. But their most diabolical trick? The free T-shirt.  

We’ve all experienced the free t-shirt at a college campus or sporting event. A booth filled with young, attractive individuals offers you a free shirt in exchange for filling out a credit card application. No upfront fee, no obligation, no catch, right? Maybe, but if you are skeptical of the free shirt, you are probably justified in your feelings. Unlike the Riddler, credit card companies are not inherently bad, but their motives are not altruistic either. So, what is their interest in having a college student possess one of their credit cards? As we established above, most students have little to no income which seems to make them a bad candidate for a credit card.  

The answer is likely one of two things. First, creating brand loyalty. Nearly 80% of all Americans carry some form of consumer debt. Credit card companies bank on this, knowing that even if you are frugal throughout college and keep the card only for break-glass-in-case-of-emergency situations there will still come a time when you will want or need their services. The t-shirt is a small price to pay for the real estate they purchased in your wallet.  

The other reason is that companies know that college students are a higher credit risk which means that card likely comes with an exorbitant interest rate. While college expenses may be low, 26% interest on even a small expense can add up to a large debt quickly. A free T-shirt isn’t as enticing if you understand that the interest on your credit card bill could add up to the equivalent of 15 T-shirts!  

If you find yourself tempted by the prospect of a free T-shirt, maybe consider this; while compound interest can work against you in the form of debt, it can have a similar positive effect in the form of savings. If you are comfortable living on Ramen for a little longer and delaying your wants in exchange for smart budgeting, you are well suited to start saving for your future retirement. Six in ten Americans are worried that they won’t be able to retire by age 65 and 46% of Americans have less than $15,000 saved for retirement. College is a time for self-discovery and self-expression. While you’re planning to surprise mom and dad when you come home with that new nose ring, maybe balance it with zero debt and an investment portfolio. If you really want to be original, being a college student with retirement savings will go a lot further toward that end than an extra hole in your body.