Caution with credit cards

Thousands of young Arkansans are now in their last days of preparing for college, where many for the first time will face new challenges, including concerns about how to pay for expenses from books to food to utility bills.

College students typically have limited incomes, so they may look to credit cards as a way to cover their mounting bills. Young consumers should use caution when entering the credit market, though, because accumulating a little debt today could possibly lead to overwhelming debt down the road.

To offer advice to young consumers considering credit cards, and to remind Arkansans about laws concerning credit-card solicitations on college campuses, Attorney General Dustin McDaniel today issued this consumer alert.

“Credit cards may be a convenient way to purchase that must-have item or meet financial responsibilities when cash is tight,” McDaniel said. “With the convenience of credit cards, though, comes the added burden of monthly bills, minimum payments and interest. Without being cautious and conscientious, consumers could face long-term financial troubles.”

In the past, credit cards were easy to come by for new college students. Credit card marketers set up shop on college campuses and at athletic events, with high-pressure solicitations and promises of free gifts for students who apply for cards. These tactics often led to young consumers taking on too much debt too soon. In 1999, the Arkansas Legislature took action to limit the marketing practices.

In 2009, Congress followed suit and placed restrictions on on-campus credit-card marketing nationwide.

Under federal law, credit card marketing is prohibited within 1,000 feet of a college campus or a college-related event. Students without employment are not allowed to have a credit card without approval from a parent. Consumers younger than 21 may only be issued a card if the applicant has a co-signer, or if the applicant can demonstrate an independent means of repaying debt.

Credit-card marketers are prohibited from using gifts, such as free magazine subscriptions or T-shirts, to entice a young consumer into applying for a card.

McDaniel provided these recommendations to all consumers who are considering applying for or using credit cards for purchases:

• Make more than just the minimum payment each month. By doing so, consumers spend less over the long run and can retire debt more quickly.
• Make monthly payments on time. Consumers more than 60 days late on credit card payments may be required to pay significantly higher interest rates on the remaining debt.
• Do not respond to every appealing credit-card offer. Having too much credit could lead to having unmanageable debt.
•  Use caution when making purchases with cards that have low, “teaser” interest rates. That temporary rate may be attractive , but the permanent rate may be unaffordable.
• Do not “max out” a credit card. Charging to the credit limit is risky, and it will affect a consumer’s credit score.

The Attorney General’s Consumer Protection Division can provide more information about credit card use and regulation. Visit the Division’s website, www.GotYourBackArkansas.org, or call (800) 482-8982.