Terry Savage

Q: Since credit cards will no longer be offered to students under 21 years old starting in February, should I get my daughter a credit card now? She won't be going to college until next fall.

A. As I noted in a recent column, the new Credit Card Accountability Responsibility and Disclosure Act will require anyone under age 21 to have a parent or guardian as co-signer, or else be able to document their ability to repay their debt.

Now, the parent will share the financial responsibility for any debts incurred, and so will have a greater incentive to watch the student's spending. But your daughter can still have a card in her own name.

This section of the law was designed to protect college freshmen from the temptations of on-campus credit card marketing. But it does have some drawbacks. Without a credit card, the student might not have access to a last-minute plane ticket or cash for an emergency. That's the downside of making credit cards harder to get for those under 21.

Credit card availability for young adults is an interesting proposition. Some are mature enough to understand the limits and costs of credit. For others, it's a trap that can severely impact their future.

According to a Sallie Mae study, college seniors graduated in 2008 with an average credit card debt of more than $4,100, up from $2,900 in 2004. And nearly 20 percent of them carried balances of more than $7,000. That's a deep hole to be digging before you even have a job to make payments on the debt. And for most, it's a burden on top of their student loans.

A successful experience with credit cards depends on the education you give your child about financial responsibility. Since it can take more than 18 years to pay down that debt making only minimum monthly payments, and four times the balance must be paid in interest, these small purchases of convenience add up to a huge commitment.

If you are planning to give your student a credit card, may I suggest going to www.VisaBuxx.com, where several card issuers participated in a program designed especially for students. They offer a reloadable debit card that looks and works just like a traditional Visa card, even allowing cash withdrawals.

The credit limit on this card is the amount of money that the parent has loaded onto the card. That's a process that can be done automatically on a weekly or monthly basis from a link to the parent's bank account. Or additional amounts can be loaded at any time in case of emergency. If the parent doesn't have an account with a participating bank, the card can be loaded directly from the parent's debit or credit card.

Terry Savage

Terry Savage is a nationally known expert on personal finance and a regular television commentator on CNN, CNBC, PBS, and NBC on issues related to investing and financial markets.

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