Credit card bankruptcies on the rise Essay
The financial challenges that fresh graduates face are discouraging. There are many young people who file for bankruptcy by the time they graduate or when they reach the age of 22 or 23. Why do many fresh graduates go into credit card bankruptcy at such young age? The typical credit card has an interest rate of 15 percent, according to Cardweb. com. That means for every $100 a person charges on his credit card, he pays an extra $15 on top if it takes a year to pay the bill. If a credit card holder misses a payment, he could find himself in the predicament of having a default interest rate, which can run as high as 35 percent on some cards.
With that credit card, the holder faces a number of charges, such as annual fees, cash-advance fees, and finance charges on the outstanding part of the bill, late payments, and over-the-limit penalties. According to Cardweb. com, the average senior student who graduated in 2007 has $8,700 in credit card debt. This is more than double that the average graduate student in 2006 held which is $4,100. It is very alarming that a high percentage of young Americans find themselves
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Studies show also that it would take up to 26 years to pay off a $5,000 credit card debt at the average 16 percent interest rate, if only the minimum 2 percent payment is made each month, which is typical for a new graduate. It is said that the U. S. college industry produces about a million fresh graduates every year. A high percentage of these college graduates go into credit card bankruptcies because of student loans that they have acquired when they were still in college. They borrow money from their credit cards in order to cover up their dues in student loans.
A new study suggests that rising tuitions, higher borrowing limits on government loans and a new wave of low-income students have pushed the average debt burden of college graduates higher as more students from all income groups borrow more to finance their undergraduate educations. According to Project on Student Debt based on NCES National Postsecondary Student Aids Study compiled by Jacob Hogue-Morgenstern, there is one in every four undergraduate student who use a credit card to pay for their tuition fees.
Millions of graduate students are saddled with the problem of paying loans that helped them go through college. Quite a number of fresh graduates also go into bankruptcy because of over-spending on credit cards. Instead of using these cards for emergency situations, they are tempted to purchase on credit majority of expenses like food, transportation, entertainment, technology, and clothing. Since they may not have proper background about financial management, they may not be able to think about the consequences while they are using their credit cards.
Countless numbers of college graduates ruin their credit by accepting too many credit cards, exhausting their credit card limit, paying their bills late, or not paying their outstanding bills at all. As a result, they pay high percentage of interest. Their credit reports too, suffer. When a college graduate has an existing job, an employer can legally pull out his credit report and determine whether or not to give him a promotion. Others cannot even get jobs in their chosen fields because of poor credit report. Analysts state that the starting salary for recent college graduate is $30,000.
This does not mean that he will take home the full amount. Taxes and other contributions still have to be deducted. When unexpected emergency costs arise, what is left of their take-home salary would not be enough to pay for their loans. Their low-paying, entry-level jobs simply cannot sustain the amount of debts they have to pay, especially when they are working in metropolitan areas where higher costs of living have to be met. Many graduate students find it hard to live to society’s expectation that because they are now holding a degree, they are then capable of being financially responsible for themselves.
Society expects them to be more independent and responsible financially as adults. It is a depressing reality that a lot of college graduates find themselves entering the job market with no savings and very high credit debt. Financial experts offer a number of ways to reduce financial burden. They suggested ways of economizing their low starting pay in order to pay their credit card debts. Credit card debt is not good for fresh graduates’ financial health and should be among the first debts to be paid. Those holding several cards may want to consolidate them into one low-rate card.
This can make debts easier to monitor and can reduce monthly out-of-pocket costs. Proper handling of finances especially in times when they are starting to build a stable future and the salaries they receive as starters are still at a minimum should be a priority. Cutting down on small unnecessary expenses could be a good way making ends meet. Financial planners say that fresh graduates often are in a consumption-and-accumulation approach. Upon landing in a good job, they want new clothes, new car, or a new unit to rent. But getting past this mode and trying to save money could get him past his financial obstacles.
Fresh graduates, once they get a good job, should make it an effort to open a savings account or open a retirement account. They should also try to pay the credit card balance in full every month. As soon as they have paid off their credit card debts, it would altogether be to their advantage if they do not anymore apply for credit cards. This way, they will be spared from the burden of paying for high interest rates, and the temptation of spending more than they can afford will be averted. Fresh graduates, who have filed for a credit card bankruptcy, should thereafter learn to develop a financial plan and practice living within his budget.
After filing for bankruptcy, a person may not be able to save for his future, but as soon as he can, he should try to save money and resist the temptation of spending through credit cards. . . REFERENCES AFT Michigan Capitol Report. October, 2006. 8 March 2008. <http://aftmichigan. org/takeaction/capitol/capitolOC06. html>. Khalfani, Lynnette. “Zero Debt for College Graduates”. (n. d. ) Kaplan Publishing. 8 March 2008. <http://www. themoneycoach. net/downloads/zd%20for%20College%20Grads%20- %20excerpt. pdf>. Maryland Council on Economic Education & National Foundation for Credit Counseling.
“Live a Richer Life – A Roadmap to Personal Financial Health Following Bankruptcy”. National Foundation for Credit Counseling. 2 January 2006. Todorova, Aleksandra. (16 May, 2003). “Don’t Earn an F in Personal Finance”. SmartMoney. Updated 28 February 2008. 9 March 2008. <http://www. smartmoney. com/consumer/index. cfm? story=20030516>. Trigaux, Robert. (22 November 2004). “Generation Broke: New grads bear heavy load”. St. Petersburg Times. 2006. 9 March 2008. <http://www. sptimes. com/2004/11/22/Columns/Generation_Broke__New. shtml>