Credit Cards on Campus: One Student's Tale of Disaster

Last Updated Apr 15, 2011 8:47 AM EDT

Student loans are easily the biggest financial issue for most new college graduates. The average total: $24,000. But credit card debt is right there, averaging $4,100 for new grads, and in some ways it's far more insidious than the debt students incur to get an education. Interest rates are higher on credit cards, which are also a more convenient way to overspend. Card companies may regularly raise your limit, allowing you to get deeper in the hole.
I've spent a fair amount of time reporting the issues with student loans. You can read my recent series here. Now I'd like to highlight the financial threat of credit cards on campus by recounting one student's tale of disaster. This story has a freakishly happy ending. But it still stands as an illustration of how easily and thoroughly the credit card industry can victimize students.
Meet Curtis Arnold The son of two schoolteachers, Curtis Arnold grew up in a middle class home in rural Arkansas. Money was tight and he learned early in life not to be wasteful. When he went away to college in 1988 he was 18 years old and took with him the family's penchant for thrift; he can't recall ever having really splurged. He had earned a full scholarship, so tuition and student loans were never an issue. But he yearned to break free from his parents, financially speaking. So soon after landing on campus little things like gas for his '73 Olds and school supplies were on him, and they began to add up.
Curtis applied for and received his first credit card almost as soon as his feet touched the campus quad at Ouachita Baptist University, about an hour southwest of Little Rock. It was a MasterCard with a $250 credit limit and a required minimum monthly payment so low that his debt would actually grow if he paid no more than the required monthly minimums. "My attitude was you sign up for classes, then you sign up for a meal plan, and then you sign up for a credit card," he recalls. "That was the college experience."
He had no income and virtually no assets, and he had never taken a class in economics or personal finance. So he was puzzled why any creditor would want him. Then he reasoned that the card company must have known what it was doing. He was young, getting an education and would go places. He couldn't imagine making less than $100,000 out of college. The bank was right to give him a credit card. This was the way the system worked.

It didn't take long for Curtis to hit the $250 limit on his card and when he did, like magic, he found that the limit had been doubled to $500. That was his reward for being a careful cardholder and never missing one of those miniscule minimum payments of just $5 or so. By the end of his freshman year the new limit had been hit as well, only this time MasterCard did not automatically up his credit limit. So Curtis applied for a second card. "I thought this was the answer," he says. "But it's at this point that I had started digging myself a grave."
Curtis worked hard at summer jobs and through four years of undergraduate studies he never missed a payment on his first card, or his second card -- or, for that matter, cards three, four and five. Those came along in rapid succession as he reached his limit one card at a time. He was very good at this, or so he thought, and on graduation day in 1992 he was carrying five cards with a cumulative balance of about $5,000. His minimum payments were starting to get stiff; they were up to more than $100 a month. But he didn't change any of the habits that got him there. He kept charging food and clothing and other necessities and letting the balances swell. He figured it would all work out. He was going to get that big job.
But there was no big job for Curtis when he graduated with a history degree. So he enrolled in graduate school at the University of Arkansas at Little Rock and later transferred to the University of Texas at Dallas with his eye on a more lucrative field of study: international business. "I kept chasing the dream," he says. "I kept thinking I'm going to be an international businessman. I'm going to be in Tokyo doing deals. I have this inflated self-image. But the reality is that by the end of the first year of graduate school I've got in the neighborhood of $10,000 in credit card debt. I've got a remedial job where I'm working as a night man earning a little bit above minimum wage. I'm just barely staying afloat."
In grad school his expenses went up, the higher rents in Dallas being the biggest budget buster. But Curtis, who still had never missed a card payment and, remarkably, never would miss one through a decade-long debt odyssey, found comfort in his ability to keep his payment record clean. As long as he could make those minimums, and keep his ambitions high, he figured he was fine.
Then one day he had an epiphany. "I just remember thinking that this can't continue," he says. "By then I'm about $20,000 in and my minimums have mushroomed to $180 and I'm starting to feel the pinch. I'm truly on my own and I start to really ask for the first time in my life, where's this going to end?" By this time he had 10 credit cards and was applying for an 11th. "That's when my little game started coming to a crashing halt," he says. "I got a rejection letter."
Sensing that the jig was up, Curtis gave up his graduate studies and started logging more hours at work. Still, his debt was growing and soon it stood at $30,000. He was in a terrible bind when his parents threw him a lifeline. His mother had inherited a house back home in Arkansas and offered to let Curtis live there rent-free. That looked pretty good to him, even though he had to swallow his pride to accept. But he did just that, and when he got back to Arkansas he landed a full-time banking job that paid about $25,000 a year. It was a far cry from the six figures he had long envisioned. But with a steady paycheck and a new, healthier attitude about debt he was determined to pay off his balances.
· How Curtis Engineered His Happy Ending
  • Dan Kadlec

    Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.