Tough Lessons of Credit: Coping with College Costs

By: Phyllis Furman
Posted In: News

When Lakesha Hauser went off to Utica College, her mother warned her against signing up for credit cards.

She didn’t listen.

Without her parents knowing, Hauser loaded up with four pieces of plastic and now she’s paying the price. The 24-year-old East Harlem resident neglected to pay up on one of them, and three years after graduation she’s being hounded by her credit card company.

Hauser, who holds an entry-level administrative job at insurance giant CNA, has been told by an attorney that she owes $2,000 and must pay it all- now. Her savings and checking accounts have been frozen and she says she doesn’t earn enough to pay off her debt all at once.

“I haven’t written a check in months and it’s getting harder and harder to pay bills,” Hauser said.

Remarkably, Hauser ran up the big college tab, not on spring break vacations in Cancun or jewelry, but on basics like books, toiletries and food.

She’s hardly alone. As credit card companies ramp up their efforts to lure young people, more than 80 percent of college students are now flashing plastic and nearly a third have four cards or more.

“Credit card companies are all over campuses,” said Howell Edwards of nonprofit credit counseling agency InCharge.

Many young adults simply can’t pay their bills. In recent years, the country has seen a more than 50 percent increase in bankruptcy filings among people under the age of 25.

That bodes poorly for their future. Excessive debt and inability to pay can lead to damaging credit reports that can hurt young adults later on in life when they try to buy a car or rent an apartment, said Clare Stenstrom, a financial planner with Bourne Stenstrom Capital Management.

Nonetheless, experts offer hope and guidelines even for people in situations like Hauser’s.
– Keep the lines of communication open: “Show that you are in good faith towards repayment,” said Michael Anderson of financial planning firm Evensky & Katz.

Stenstrom recommends writing a letter offering a payment schedule for the bill- say $400 a month- and then asking the creditor to stop charging fees and interest on the balance.

Enclose a check for the first payment. “If they cash it, they have agreed to your ‘contract.'” Stenstrom said. “Make sure your payment schedule is reasonable. Ask for the original bill- you are entitled to it. Always pay the bill on time.”
– Know your rights: A hold can not be placed on a bank account by a credit card company without a court order, Stenstrom said.
– Seek the advice of a not-for-profit credit counselor, like InCharge: These groups can help by approaching creditors and getting them to reduce debts to a more manageable level. A credit counselor will ask you for a nominal donation, but generally they get paid by creditors. To locate one, go to Web sites like AICCCA.org or NFCC.org.
– Consider taking out a loan: If your credit isn’t terrible, you may be able to take out a lower-interest consolidation loan or a home equity loan. But remember with a home equity loan, you are putting your home at risk.

If have no other alternative, you may have to tap your retirement funds, said Holly Davidson, a sales representative for credit company The Kelly Group. “Take any means necessary to keep your credit healthy,” she said.
– Cut back: Bring lunch to work. Get rid of the cable TV and hold down your cell phone use.
– Try to do better in the future: “Remember, a credit card is a loan,” Stenstrom said. “It’s your responsibility to pay it off.”

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