Credit Cards Debt for Life?

How can you stay out of credit--card debt?

Most people like to buy cool things--sneakers, sweatshirts, CDs, whatever. But if you've been shopping lately you know that such items usually don't come cheap.

Every day, U.S. consumers are bombarded with glossy billboards, TV commercials, and advertisements that scream "BUY! BUY! BUY!"

With temptation everywhere, how can you resist those little "extras"--or sharp outfit you might wear once or twice; the pair of boots that would look great with your jeans; the new CD player you have to have?

Credit-card companies offer a seductive solution: A magical card that allows you to have today what you couldn't otherwise afford until tomorrow--or next year.

Rising Rates

Most credit-card companies only ask that you pay off a small portion ol your debt each month. But how can they afford to pay your bills?

They charge interest--and lots of it Rates vary, but the average credit-card company charges about 16 percent interest a year. Some card users pay as much as 25 to 30 percent interest. On top of that, there are hidden charges, such as penalties for late payments (often $25 a pop).

If you're not careful, you could find yourself paying a hefty sum each month--in interest and penalties alone!

For example: Suppose you charge $1,220 in Christmas expenditures (the typical amount). If you make the minimum required monthly payment, it will take you 22 years to repay the debt and cost you $2,500 in interest.

In 1999, the average household owed $7,500 in credit-card debt, according to Cardweb.com, a company that tracks credit-card activity.

Big Teen Spenders

Once upon a time, credit cards were only for adults. But with teens pumping more than $150 billion into the economy each year, companies have been targeting younger and younger consumers.

Many parents and consumer advocates say that such practices are unethical. Kids, they argue, aren't ready for the responsibility of using a credit card, Many adults can't even manage their own cards!

The critics may be right. A study by the American Institute of Certified Financial Planners found that 10 percent of college students have at least $7,000 in credit-card debt.

"The industry is pushing kids to get involved in the spending economy at an earlier age," says Robert Manning, an economist. "It shouldn't surprise us that kids are getting into trouble."

A Debit Card for Kids

Some credit-card companies are marketing a new card--a debit card--aimed at kids just like you. Instead of allowing you to charge a purchase, the card deducts the amount of the purchase from money already deposited in the bank.

The new cards look like regular credit cards--but your parents decide the spending limit and deposit that amount in a special bank fund.

Credit-card companies claim that debit cards will teach kids to be more careful with their money. But critics say that such cards will encourage kids to postpone paying with cash at younger and younger ages.

Only parents can apply for the card. And they can track your spending on the Internet! Are debit cards an answer to teen credit-card debt? Or are they just another way to get kids to use plastic instead of cash? What do you think?