Return to Transcripts main page

American Morning

Interview with Ellen McGirt

Aired September 02, 2002 - 08:41   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: College students today are heading back to class. They are loaded with new books, new clothes, and plenty of plastic. At the end of a four-year undergrad career, not only will most students have a degree, but an average credit card debt of $2,300. What is a parent to do to help their kids along?
Ellen McGirt from "Money" magazine drops by this morning with some advice on how to keep your kids from falling into the debt trap -- good morning.

ELLEN MCGIRT, "MONEY" MAGAZINE: Good morning.

KAGAN: That might be one of the most important lessons they learn when they are in college.

MCGIRT: I think it is. It doesn't always have to be bad. You can actually leave college with a good credit history, but most kids are actually leaving with an unmanageable amount of debt.

KAGAN: I want to talk about positive things you can do in just a moment. First of all, the situation, as we were sharing -- I didn't have a credit card when I was at college. Today, I guess you just walk down a college campus, and they're throwing free credit cards at you.

MCGIRT: Oh, and the universities benefit from it. They create these wonderful marketing agreements with banks and credit unions. You have got these smiling happy people giving you T-shirts and frisbees, and it seems all wonderful. Next thing you know, you have got two, three, four credit cards and $5,000 in debt, and you're in trouble.

KAGAN: And the other thing, parents cannot keep a kid from getting a credit card because once you're 18, you don't need a parental signature?

MCGIRT: Not any more. As of about two or three years ago, all credit cards for kids that didn't have jobs and that were under 21 needed a parental signature. Now you don't. The credit card companies know that you have got these people waiting in the wings that don't want their kids to get in trouble, and will most likely bail you out.

KAGAN: So mom and dad will come to the rescue, the credit card people will get their money. Meanwhile, there are some more positive ways you can go about this.

MCGIRT: Yes. Oh, absolutely.

KAGAN: Let's go back even precollege. There is a way you can kind of do a credit card with training wheels.

MCGIRT: Oh, absolutely. I think -- preparing for the segment, I was reading a study that fully 50 percent of high school students didn't understand that a credit card was actually a loan you were giving yourself.

KAGAN: What did they think? You just swipe it and you get it for free?

MCGIRT: Yes, it is just like a little fun ticket really.

KAGAN: That would be fun.

MCGIRT: But if you could cosign a card or get a kid on your card so that you go through the actual ritual of understanding where your money goes and paying the bill every month, it gives them a chance to understand how compound interest can work against them or it can work for them. Make sure they have a checking account. A lot of kids don't really understand the mechanics of writing a check and paying bills every month.

KAGAN: Balancing a checking account. Now that I did do in high school and college.

MCGIRT: There you go.

KAGAN: Somewhat.

MCGIRT: But you didn't have those big bills coming in -- it didn't mean as much if you weren't going to get as much...

KAGAN: No, I didn't have all this credit card debt.

MCGIRT: No.

KAGAN: What about some really good questions you can ask your kids. Not just, Do you need money, but how about how are you spending your money?

MCGIRT: That is a big distinction, because everybody wants to know that their kids are doing fine in case of emergencies. But if you bring it up often so it becomes part of the family landscape, How are you managing your money? Do you have any questions about any of the credit card offers that you have been receiving? Have you taken out a credit card that I don't know about? Are you getting into trouble?

One of the most important things that kids can learn is, even good people under all kinds of circumstances can get into circumstances that are unfamiliar, but the sooner that you course correct and get your questions answered, you can solve a problem, maybe switch to a lower credit card, maybe switch to a secured credit card... KAGAN: You could cut them up.

MCGIRT: You could cut them up. Maybe understand where impulse spending is coming in, all those kinds of things.

KAGAN: And then one thing that might be really hard for parents to do because they have trouble, perhaps, sharing their faults, you have to be honest about your own debt history.

MCGIRT: This is a little sticky. And you really have to use your best judgment, especially if you have got a problematic past. You don't want to say, you know, Your mother ruined my life. That is why I had to refinance the house.

(CROSSTALK)

MCGIRT: You don't want to revisit these emotional issues, but especially now when people are worried about losing their jobs or perhaps their retirement funds have taken a hit, you say I had to adjust my spending. This is what I was worried about, this is how I did it. And it is a way of just getting the conversation into your family life on a daily basis, perhaps not revealing too many details that might be uncomfortable, but knowing that everybody has to think about budget, everybody has to think about credit and debt, and everyone has to think about their spending habit.

KAGAN: And then just quickly, if you are watching the segment, it feels like it is a little too late, you are already in trouble, there is help out there.

MCGIRT: Oh, there is always a solution. You can talk to your credit card companies, you can renegotiate a lower rate. If you get into trouble with your student loan, which is really where a big chunk of this can happen, you can end up not being able to qualify for more grants if you are unable to pay your debt. You can begin to -- you can go into forbearance, which is just a delayed payment for a while, you can seek credit card counseling, and there is always -- nowadays, campuses are very good at providing on-site counseling services for kids and managing their money, so take advantage of all of these resources.

KAGAN: Look for help and ask for it.

MCGIRT: Absolutely.

KAGAN: Ellen McGirt from "Money" magazine. Thank you so much.

MCGIRT: My pleasure.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com