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Our eldest daughter recently graduated from college (1 down – 3 to go). She moved west to take up an internship that would help her get some of the certifications she needs. During her college years our mailbox was filled with student loan companies to make sure she knew they were there for her – to lend her what she needed to complete her degree. Now that she has her degree – our mailbox is inundated with offers from credit card companies offering her the “she needs” credit to kick her life into full gear.
I am clearing offers fast as soon as I get home. And I have shared with him the trap these companies are setting for him and his contemporaries. Instead of cutting out offers last week – I let them pile up on my desk. We opened them and the first few sentences of each letter were quite an eye-opener.
“You worked hard to earn your degree and that hard work has earned you our respect…”
“Congratulations on receiving your college degree. As you begin your professional life, you may need to rely on credit to get started…”
“Great job. We offer you a wonderful opportunity to help you build your credit rating…”
That’s the normal way that it ends for us young adults. As the offers come in recent graduates accept some of them – feeling great that their hard work has been recognized and with the noble purpose of having the card in case of emergency. Card companies may claim credit limits in the range of $1500 to $2000 – but the reality is that once the application is submitted – unless the graduate has already earned an excellent income – most often they will get a limit of $500 A small limit will be given in
Once they have the cards, it becomes almost impossible to resist the temptation to use them. Maybe it’s a piece of clothing, or a night out with friends, or even gift shopping for a loved one. The intention – as we all know – is always the same. “I’ll use the card to buy it… and I’ll pay the balance when the bill comes”. Then when the bill comes and the minimum payment is only $25 – most will pay the minimum because they have other cash flow needs that seem more important at the time. And this cycle keeps repeating itself month after month.
As time progresses, credit companies will start offering credit limit increases. As they see that the payments are being made on time – that small range of $500 – becomes $750 – then $1000 – then $1500. Roll the clock forward 5 years and these young adults may find themselves with $20,000 plus credit card debt – minimum payment payments of $500 per month – and not really making a dent in the principal balance. It’s a cycle of financial paralysis.
I recommend that you share this with any young adults in your circles. Make sure they know what is at stake and why these companies are doing their best to get them into a whirlwind credit nightmare. Explain to these young adults the concept of “delayed gratification” – instead of what the credit companies are offering – “instant gratification”.
Credit is important – no argument. But understanding the proper use and pitfalls of credit is equally (if not more) important. spread the word.
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