When the Credit CARD (Card Accountability, Responsibility and Disclosure) Act activates come February next year, a particular set of legislations are going to go live which will stifle the ability of students to get credit cards.
Legislation from the Credit CARD Act will prohibit Americans less than 21 years of age from getting a credit card unless they have a co-signer for them or they can prove that they have the financial ability to make payments to their credit cards. Congress saw these legislations as a necessity after considering the credit card debt situation of college students.
Sallie Mae is the larges provider of federal and private student loans for both graduate and undergraduate students. A recent study that the company made showed that 84% of undergraduates carried at least one credit card and 50% carried four or more. The study also showed that many students were graduating with considerably credit card debts, often carrying high interest fees.
The need for legislation controlling credit card usage among young adults could not be any clearer. However, the legislation, while protecting young adults from burdening themselves with credit card debt, will also keep from them the convenience of having a credit card to fall back on in case of financial emergencies.
In the end, the burden falls down on the parents. With the new law in place, the parents of college students and other young adults will most probably be the ones who will serve as co-signers for them when they apply for credit cards. It's a heavy responsibility, especially since they will also be responsible for the debts that their young adults might rack up.
There are, fortunately a few practical solutions for parents who are worried about co-signing for their young adult's credit card application. The first and most important one is to educate them about responsible credit card use. This is a very critical skill and is not as easy as it sounds. It isn't something that adult credit card holders have mastered either, considering the number of adults in credit card debt these days.
Other solutions include opening a checking or savings account under their children's name. This is especially helpful if the parents have a good financial history. This can help their children build up a good financial history which can be priceless when they grow up and need to take out a mortgage or loan on their own.
Although it may seem overbearing but parents should do their best to keep an eye on how their young adults are handling their credit. They should encourage them to pay off their bills on time and to avoid revolving credit if at all possible. If not, to at least keep it low. Like most things, credit cards can be very good if properly managed. If abused, however, it can be very dangerous.