Credit Card Borrowing Tightens for Under-21s

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At first it was just the Best Buy card that Paul Davis used to buy a few Christmas presents -- a couple of iPods and a fly pen.

Then, he said, another credit card company lured him into buying a computer and camera with a $2,000 credit limit and zero interest over 12 months.

"Every day a letter would arrive in the mail, and I would wait for the sweet offers to come," said Davis, then a student at Cape Fear Community College in North Carolina.

VIDEO: Safeguarding Your Finances on Campus

He hoped his work with a photographer would provide extra cash, but when that didn't pan out, he took on another credit card just to pay for basic necessities.

"I'd pay off my credit card, and then I'd have just enough for the rent and use what I had just paid off for food, gas and a pack of smokes," he told

"I was aware of what was going on, but not the depth of my debt," he said, as the interest rate soared to nearly 25 percent and he missed payments. "One week I lived on only bread and honey."

Only a tragedy -- the suicide of a friend -- galvanized Davis to return home from college and face up to reality: He had accumulated $10,000 in debt on five different credit cards.

About 84 percent of all college students have credit cards and 56 percent of them, like Davis, have more than four, according to a national study by Sallie Mae.

In 2008, college seniors graduated with an average credit-card debt of $4,700, a 62 percent increase since 2004. Nearly 20 percent of them carry balances of more than $7,000.

But provisions in the new Credit Card Accountability, Responsibility and Disclosure Act of 2009, which will go into effect in February, seek to rein in that debt, making it harder for students to qualify for credit cards.

Credit Card: 'Magic Piece of Plastic'

"It's kind of like this magic piece of plastic," said Adam Levin, co-founder and chairman of and former New Jersey state consumer affairs director.

"You hand it to someone and they give you something back," he said. "Then 30 to 40 days later, the ugly consequence shows up."

College graduates should be building on their financial future, "not digging themselves out of a hole," said Levin. "Students think it's their GPA that's important, but it's their FICA score."

Credit Card Debt Can Destroy Life

Unpaid debts can destroy students' credit down the road when they want to purchase homes or vehicles.

The new legislation means that students will not be able to charge more than 20 percent of their earnings, and in the event they cannot prove their independent ability to pay, they are required to get a co-signer.

Credit card companies will be required to get a parent's written permission before raising credit limits.

It will also ban the companies from using "freebies" such as T-shirts, food and electronic gadgets to entice students. It will prohibit schools from selling students' names and personal information to credit card lenders.

Lenders also would have to disclose financial agreements between them and borrowers, and have universities offer education programs to incoming freshmen.

"Colleges say you need trigonometry but not life skills," said Levin, who also blames parents for not educating their children about financial intelligence and being wooed by the "siren song" of the credit industry.

"Parents say, 'You are an adult, you got yourself into this mess, now get yourself out,'" said Levin. "But tough love should be exercised before, not after, the fact."

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