Your little prince or princess is (nearly) all grown up, and is off to college this year. Not an easy time, is it? Your help may still be needed, but it's unlikely to be greatly appreciated.
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And you can expect fireworks at the mere suggestion of interference. Hint in the mildest possible terms that, while the apple of your eye is packing for freshman year, he or she might choose to find room for a few pencils and books among the sports equipment, weird clothes and electronic gadgets of unfathomable purpose, and you could be on the receiving end of a hormone-fueled rage that could leave you scarred for life. So you'd be forgiven for deciding that discretion is the better part of valor, and that silence is the best policy.
However, there's one topic about which you really have to make your voice heard. And that's how your kid is going to manage his or her finances at college.
Student credit cards: the line of least resistance
Chances are that your beloved offspring would like you to cosign a credit card application so that he can get his hands on a proper, grownup piece of plastic. And that may well be the best solution for him. But it may well not be the best for you, the cosigner.
You know your child. Has her piggy bank been full since her third birthday? Does the balance in her savings account make you gasp in an admiring rather than a despairing way? Does she negotiate a usurious rate when people ask her to lend them money? If you can answer yes to all of these, then you're probably as safe as possible in cosigning a credit card application.
It's your credit card debt and credit score at stake
But if your child is eternally short of cash, always borrowing against next week's allowance or occasionally comes home with bruises from the schoolyard loan shark, then you owe it to him and yourself to refuse to be a cosignatory. He doesn't know how to manage money now, and it's unlikely that he'll undergo a conversion to prudence en route from his current bedroom to his college dorm.
Cosigning for credit cards is a serious step. Depending on the agreement to which you attach your John Hancock, you could find yourself on the hook for thousands without any warning of the mounting credit card debt you've taken on. And you could find your phone permanently off the hook as you're harassed by auto dialers owned by collection agencies that have every legal right to expect you to cough up. Meanwhile, you could find your credit score in free fall.
Worse, some cosigning agreements have no end date. It's one thing to support your perfect 18-year-old daughter as she takes her first faltering steps into the outside world. But how would you feel if you were still responsible for her credit card debt when you're retired, and she's a 40-year old gambling addict who has shacked up with a crack dealer in Las Vegas? Not all cosigning agreements are as strict as this, but you really, truly, honestly need to read the small print before you sign one.
Student credit cards: some alternatives
Yes, you're right when you question how likely it is that these worst-case scenarios could apply to you and your family. But that doesn't mean they won't, and--even if they don't--you're really not doing your children any favors if you enable them to build up credit card debt they can't handle. So what should you do if you believe your freshman kid would be better off without mainstream credit cards? There are three main alternatives:
- Debit cards: As long as there isn't an overdraft facility, these should prevent excess. However, they don't usually allow youngsters to develop their own credit reports and scores.
- Secured credit cards: These require an upfront, returnable deposit (like a deposit on a rented apartment), and that amount becomes the credit limit. So there are few opportunities for irresponsible spending, and many of these secured credit cards report to credit bureaus, so your child can begin to build her own credit report and credit score.
- Prepaid cards: In theory, these are little different from cash, and should be perfect for those students who are most likely to go off the rails. However, they sometimes come with hideously high hidden fees, so take great care when choosing one.
It's important to recognize that none of these alternatives normally provide the same statutory consumer protections as proper credit cards. However, you may well feel that that is a small price to pay for your own peace of mind.
Student credit cards: some top picks
So far this article has tended toward the assumption that the fruit of your loins has turned out to be something of a financial lemon. Not that there's anything wrong with that. It's early days, and Bernie Madoff was probably a model of financial probity at 18 or 19.
But let's now assume that your child is somewhat less economically challenged, and that you feel confident to give him a boost by cosigning a credit card application. Which cards should you be looking at? Three spring to mind, none of which have annual fees:
- Journey(SM) Student Rewards from Capital One® Your princess should get 1 percent cash back on all purchases, and free text and email alerts to help keep payments on track. If she pays on time each month, she's due a 25 percent bonus on her cash back, which might encourage financial responsibility. There's an introductory 0 percent annual percentage rate (APR) for six months, and thereafter a standard 19.8 percent variable APR on purchases and transfers, and a variable 24.9 percent APR on cash advances.
- Citi Forward(SM) Card for College Students You don't have to cosign for this one, which should make you pleased and worried in roughly equal measure. Your prince will get a 0 percent introductory APR for seven months, and then a continuing variable APR between 13.99 percent and 22.99 percent, depending on his creditworthiness. If he makes a purchase and pays on time for three months in a row, he should see his rate fall by 2 percent, which again could encourage responsible behavior. There's a generous, though complicated, points-based credit cards rewards program.
- Discover Student Tropical Beach Card This may be the best credit card rewards program of the three, with up to 5 percent cash back in categories of purchases that change each quarter. There's a 0 percent introductory APR for a whopping nine months, and thereafter a continuing APR of between 13.99 percent and 20.99 percent.
Few parents want to refuse their kids anything, and there's little in life that's likely to make you happier than feeling able to cosign for one of these excellent credit cards. However, refusing to do so could be among the kindest and purest forms of tough love.
The original article can be found at IndexCreditCards.com:Student credit cards: A parent's perspective
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