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College students should be careful with credit cards

As students enter college for the first time or return for another year, many will be tempted to open credit card accounts — and many of them will accumulate huge debts before they graduate.

Joe Paretta — a life coach and self-described former debt sufferer — wants people to avoid the credit card trap and be in control of their finances as early as possible.

In his book Master The Card: Say Goodbye to Credit Card Debt Forever (Balboa Press, 2010), Paretta lays out a plan for people of all ages to overcome credit card debt. He says abusing credit cards is an addiction. And like alcoholics trying to achieve sobriety, mastering debt takes a serious commitment.

But how do people get into debt in the first place?

College students are particularly at risk because they’re away from home and experiencing independence for the first time. With their newfound freedom, many students want to let loose, go out with their friends and buy things, Paretta says. When they can’t afford to pay cash for that lifestyle, some students open credit cards to get what they want without thinking about paying off the charges.

Paretta has three steps people can follow to avoid falling into debt:

● Be aware of exactly how much money they spend.
● Understand why they spend what they do.
● Learn to distinguish between wants and needs.

He recommends people write down everything they spend — to the penny — to stay aware of their spending.

The technique helped Paretta get out of debt himself.

“About three-quarters of the things I bought I didn’t need to buy,” he says. “You start to look at it differently and your spending habits change.”

He also recommends that people avoid impulse purchases. Rather, they should wait two or three days to make sure they truly need the item before purchasing it. He also says people should always pay with cash.

“When you pay with cash, you think twice about buying it,” Paretta says. “When the dollar bills leave your wallet, it feels lighter. When you pay with plastic, it doesn’t feel like anything’s missing.”

Although students should avoid the credit card trap in general, some cards are worse than others, Paretta says. Students who are lured by credit card offers at retail stores, for instance, should be especially careful.

“While credit card interest rates are high, store cards are even higher,” Paretta says. “You have to be careful. You’re really playing with fire if you don’t pay.”

Luckily, the government is on students’ side. In 2009, Congress and President Obama passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act. As a result of this legislation, banks aren’t allowed to advertise credit cards on college campuses and can’t give away incentives for signing up, either. Most importantly, the CARD Act means nobody under 21 can apply for a credit card without a co-signer, Paretta says.

“There are a lot of [young] people who are not ready to have a credit card yet because they don’t have the responsibility to use it wisely,” Paretta says.

The sooner people develop responsible financial habits, the better off they’ll be in the long run, he says.

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