Caught in the credit trap

It’s that time of year again when credit card companies and banks are stalking around campus, interested in your spending habits. And as some credit card holders will tell you, it isn’t necessarily in your best interest to have one.

Take second year student Connie Mills, who last year fell into debt for the first time in her life. “It was like being in university meant also being in debt. I still don’t make enough money and when I need books, or rent is due or even when I am hungry I break out the plastic.”

Mills confesses that she should have never applied for her credit card in the first place. “It is just too easy to buy now and pay later. It’s a bad idea.”

But sewing machine entrepreneur Isaac Singer thought it was a great idea. In 1856, as sales of his sewing machines were declining, he was faced with the need to sell his machines to customers that were struggling economically. He devised a simple payment plan. Singer may also be credited for the concept of interest rates and service fees, now standard in financial institutions.

Just how bad have service fees become? Last year, one credit card holder found out about banking practices when her bank debited $15 from her savings account, which only held $25. Her statement reported an administration fee, but when she pressed for a reasonable response they explained the account had been inactive for more than a year.

Astoundingly, about four to six per cent of the income of financial institutions is from customer billing service charges. In 2001, banking charges totalled $582 million in Canada, and according to the Cost of Banking, a 2002 report by Industry Canada, ATMs, debit cards and credit cards account for 72 per cent of these fees.

And if you think that your special five-year relationship with your bank saves you access fees, think again. A withdrawal from your debit or credit card at your bank’s ATM is fee-free, but try a withdrawal at a competitor’s institute and pay $1.50 for their service, and another $1.50 in convenience fees to your own bank.

Although paying for time and convenience has become a part of modern life, it has also become a threat to students’ financial security.

Felix M

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