Credit card interest rates cause problems for students

By Kevin McLoughlin

A rise in credit card interest rates could cause future financial problems for students.

The average student credit card interest rate has gone up to 14.26 percent, according to Credit Card Monitor, a Web site that monitors interest rates.

Groups such as the Consumer Union report that rate increases are standard for many credit card companies including Citibank, which has raised its an average of 3 percent and Capital One, which has raised its an average of 5 percent.

Chase offers an annual fee and a higher minimum payment as an alternative to a higher interest rate.

Karen Hsu, attorney at the Land of Lincoln Legal Assistance Foundation, said the rise in interest rates is partly because of the depressed economy and the nationwide rise in unemployment.

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    “A lot more people are falling behind on important payments,” she said. “If they are experiencing a loss of income or a decrease of income they might be paying for living expenses with credit cards.”

    Hsu said that ideally, a credit card users should spend within 20 to 30 percent of their balance.

    “If you’re going beyond that range that’s going to be adverse,” she said.

    “As those balances go up that’s going to trigger the tightening of the credit card account. They’re going to see those as more risky.”

    Hsu, who offers legal assistance to low-income individuals, said many of the practices she urges her clients to follow also apply to college students, especially those who will graduate soon and enter the job market.

    Chris Umphlett, who worked at the legal assistance foundation as an Americorps volunteer, said that an increasing number of students are not paying off their credit card debt immediately, especially those who have student loans outstanding.

    Credit card companies used to focus credit offers to students under the assumption that they would carry a balance for a few years before paying it off.

    “Now more than ever, careers don’t work out right away,” Umphlett said, pointing to the job market as a reason for the rising number of defaults.

    Umphlett advised students to bargain with their credit card companies, saying that they should threaten to close a credit card if their interest rates are rising.

    However, he also advised more caution regarding spending on credit.

    Umphlett warned students not to act according to different financial principles while they are in college.

    “If you can’t afford a new video game console when you’re out of college, don’t justify it by saying you’re going to make money later,” he said.

    Rhonda Jurinak, senior in Engineering, said she received notice in the mail that the interest rate on her First National credit card had gone up, but was unconcerned since she always pays her bill at the end of the month.

    However, the situation has affected how she uses her credit card.

    “I even try to use it less now,” Jurinak said. “Especially for smaller businesses because they have to pay to use the card.”

    However, Sarah Brown, junior in LAS, said that even though the rates on her Discover card have gone up by 1 percent, this development has not changed how she uses her credit card or affected her ability to pay off her credit card bills.

    Jurinak said that financial responsibility is important in these times.

    “I only use my credit card when I know I can pay it off,” she said.