By Eric Anderson

Student debt on American campuses is at an all-time high. Many financial experts and lawyers say young people in their late teens and early 20s are the fastest-growing group of bankruptcy filers, mainly because of credit-card debt.

Thirty-three million teens currently live in the U.S. In 2005, American teens spent an outstanding $159 billion on everything from movies and soda to clothes and phones.

In one survey, teens reported that they pump an individual average of $94 a week—nearly $5,000 a year—into the U.S. economy. Many of these purchases are charged on credit cards. And sadly, many students are learning the hard way about the pitfalls of using plastic.

In the past, credit card companies required parents to co-sign for students’ cards. Not today. Now students can easily get a credit card and charge items their parents wouldn’t normally give them cash for—things like alcohol, tobacco, tattoos or body piercing.

“Kids’ access to credit is way too easy,” said Paula Langguth Ryan, author of How to Bounce Back From Bankruptcy. “The credit card companies have figured out that high school seniors and college students have the most disposable income.”

In the past decade or so, students have been deluged with credit card offers, which often invite them to use their new credit card to “establish a good credit record—one that will be valuable to you later on.”

The cards also advertise other “perks,” such as “security in emergencies” (for example, if the car breaks down) and “convenience” (so you won’t have to keep running to the ATM for cash).

According to one school loan provider, more than 54 percent of college freshmen own credit cards. They also bring an average of $1,585 of credit card debt to college. The percentage rises to 92 percent by their sophomore year.

For some college students, the amount of debt hanging over their head is enough to make them drop out. It’s estimated 7 to 10 percent of enrolled students will drop out because of debt.

Many credit card companies claim to promote financial responsibility. Yet some critics, like Minnesota bankruptcy lawyer Robert Hoglund, say that many lending institutions are indiscriminate.

“It’s like keeping liquor stores open 24/7, selling to minors, then wondering why everybody’s drunk all the time,” said Mr. Hoglund.

The alluring thing about many credit cards is the small minimum monthly payments required. Most students can manage $25 or $30 a month, at least at first, but the trouble is, they often continue to borrow and get other cards until they can no longer meet even the minimum payments.

More young people who are in financial straits are filing for bankruptcy. If they can qualify for bankruptcy by convincing a judge that they have no way to repay their debts, they may be forced to sell their assets—like electronic equipment, jewelry, or car—and end up with little or nothing. Other times a court-arranged repayment plan is ordered.

After going through bankruptcy, a person’s credit report gets a huge red mark—and the bankruptcy filing stays on their record for seven to ten years. Because of this, they often find it difficult to find a landlord willing to rent them an apartment, and usually don’t qualify for things like cable or cellular phone service. They might get a car loan or mortgage, but usually have to pay substantially higher fees than someone with a good credit rating.

The Price of Credit

When charging purchases on credit cards, or financing a major purchase such as a car, people often forget to look beyond the amount of their monthly payment.

The table below shows the time it would take, in years, to pay off a $1,000 debt, at different interest rates—assuming no late fees or new purchases.

Monthly payment At 9% 17% 21.5%

$25 4 years 5 6

$30 3.3 3.8 4.3

$50 1.8 2 2.1

Financing purchases long-term on a credit card, in effect, increases the price you pay for each item. Based on the examples above, consider the following true cost of a financed $100 pair of jeans:

Monthly payment At 9% 17% 21.5%

$25 $119.30 $148.60 $177.50

$30 $115.50 $136.30 $153.60

$50 $108.80 $118.40 $124.90

Ask yourself: If the original price tag for that pair of jeans had been $177.50, would you have gone ahead with the purchase if you were paying cash?

Credit counselors say that if you cannot exercise self-control when using credit, pay cash; you’re far better off. Remember, if you abuse your credit, it could adversely affect your life for many, many years to come!