Spring Break is for Fun, Not for Debt

It’s spring break time at many campuses across the United States – the traditional weeklong break from classes and a time for relaxation. Whether you’re headed to a sunny vacation spot, traveling to see family, or somewhere in between, you’re bound to be pulling out your wallet to pay for your travel and expenses.

Graph from the Spring 2008 Economic State of Young America report by Tamara Draut of Dēmos

For example, let’s say you charge $1,000 on a credit card that has an interest rate of 11 percent, and make no additional charges on that card. If you make $20 payments for each month, it will take over 67 months – more than five and a half years – to pay off this debt in full. And you’ll end up paying about $343 in interest (depending on your exact billing terms and conditions). And this scenario assumes you’re not late and don’t incur any other penalties. According to a survey by Consumer Action, late fees in 2008 were as high as $39, and oftentimes late fees and other penalties are accompanied by an increase in interest rate.

Studies have shown that college students are already using credit cards to pay for every day necessities while they are completing school. While credit cards have no doubt been used by college students for frivolous expenses, a survey of college students by the consumer group US PIRG found that 55% of students reported using their credit cards for day-to-day expenses, and 55% used their credit cards for books, the two highest-ranking categories.

While some students are using their cards responsibly and paying off their balances every month, the convenience of credit cards makes it all too easy to add to a mountain of debt that could already be burdensome.

It’s easy to say that credit card debt like this can be paid off as soon as you join the workforce. But unfortunately, the prospect of having a job that pays well has become slimmer over time. Median annual earnings for 25-34 year-old men have declined from $43,416 in 1975 to $35,100 in 2005 (in 2004 dollars), according to an analysis of U.S. Census Bureau data by the research group Demos. That same analysis found that women’s median annual earnings increased only slightly over that same twenty-year period of time, from $29,184 in 1975 to $30,300 in 2005 (also in 2004 dollars).

And once you’re in the workforce, your credit card payments will come alongside any payments you’ll have to make on student loans – which could be a substantial chunk of your income in that new job.

There’s plenty of ways for you to make a budget that will help you to cut your costs now to ensure that you’re living within your means.

Credit cards are indeed convenient, but difficult to use responsibly. Cardholder agreements are written in a way that is difficult to understand, and information within them is poorly organized. The Federal Reserve will implement stricter rules on credit cards next year, and as Congress continues to mull taking action to require better protections for credit card borrowers. But in the meantime, you’ll have to take steps on your own to ensure you don’t get into trouble.

Before you’re ready to say “live for the moment” and splurge on all the extras of spring break, take a second to think about your financial future.

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