The decision should be thought out carefully and all options considered.
Credit cards are convenient. They can be a life-saver in emergencies, such as car troubles or medical emergencies. If used properly, they can help a young adult establish a good credit history.
But many young adults are not ready to take on the financial responsibility associated with having a credit card.
College students who carry a credit card balance from month to month have an average indebtedness of over $2,000. Over time, this could lead to financial, academic and even psychological disaster. Many students take on an additional part-time job or quit school completely to pay off their credit card debts.
But there are a number of credit card alternatives for young adults that may help introduce them to the world of credit cards without such disastrous consequences.
Young adults, age 18 to 21, may own a traditional credit card. Parents may not be able to monitor charges and payments. Bills are sent directly to the young adult and they are responsible for managing the amount charged and making payments on time. According to federal law, they are considered an adult and are legally responsible for credit card debts.
A young adult may have a parent co-sign for a traditional credit card. This makes the credit card companies more willing to issue a card to a young adult. Bills are still sent directly to the young adult. Parents may not be able to monitor the card’s use, but the parents are legally responsible for debts their children can’t pay.
Students cards are similar to traditional cards, but they usually have lower credit limits. This reduces the risk of accumulating high debts, but the cards often have above-average interest rates.
Secured cards require a deposit equal to the credit limit on the card. They may have high interest rates.
A young adult may be added as an approved user for their parents’ traditional credit card account. The bills are sent directly to the parents, since they are the primary card holder. This allows parents to monitor the charges being made.
“Teen” or “smart” cards are not truly credit cards, but are a much safer alternative. Money is deposited into an account by the parent and each time the young adult makes a purchase using the card, the amount of the purchase is deducted from the account. When the funds in the account have been used, the account must either be replenished or the card can’t be used anymore.
Whatever the option, the thing to remember is to use credit cards responsibly.For more information, consult the University of Nebraska Extension NebFact 02-540, Preparing Your Graduate for Life After High School: Credit Card Options for Young Adults, available at the Otoe County Extension Office.
