King Kong debt meets middle-class life

"I don't think students are more in trouble than [other] Americans in terms of overspending - they're just ... the least experienced," says Darryl Dahlheimer of Lutheran Social Service Financial Counseling, the group hired by the Twin Cities campus. "We work with a ton of bitter 30-year-olds who have paid for a decade on a card they got in college ... so we figured: 'Why not go upstream?' "

It is the only such service on a college campus as far as Mr. Dahlheimer knows. So far, about 25 percent of his student clients have needed credit consolidation. It typically takes four or five years for them to pay off their debts.

Debt is an "epidemic," Dahlheimer says, and he considers his work a "thimbleful of help" in the face of a credit-card industry that actively targets young people. He recalls one student who signed up for two cards in a week just because the vendors were offering free cookies.

Industry representatives counter that college students' debt problems are overblown. They have an average credit limit of just $1,395, says Daniel Drummond, spokesman for Your Credit Card Companies, an educational campaign set up by a group of major financial-services firms. He cites a 2002 study by the Credit Research Center at Georgetown University, which found that college students are more likely than others to pay their balance in full; only 5 percent incurred more than $26 in finance charges in a given month.

Yet consumer advocates say it's getting harder for people to keep up with potential pitfalls in the fine print. Cards with low interest rates, for instance, often raise the rate substantially if the cardholder makes one late payment.

Those who get by just paying the minimum monthly charge may not have noticed that the typical minimum has been lowered in recent years from 5 percent to just 2 or 3 percent, according to De-mos, a research and advocacy group in New York. With an interest rate of 15 percent, it calculates that it would take 32 years to pay off $5,000 by making only 2 percent minimum payments. It also warns about bigger late fees: Revenue to credit-card companies from late fees jumped from $1.7 billion in 1996 to $7.3 billion in 2001.

Credit-card companies are simply responding appropriately to risk, Mr. Drummond counters. "[They] have built very sophisticated systems to determine which customers handle their credit responsibly." Only 3 percent of cardholders are more than 30 days past due.

But credit cards can facilitate bad habits, critics say. "Money is somewhat abstract when people use credit cards," says James Roberts, a marketing professor at Baylor University in Waco, Texas. He's found that people spend up to 50 percent more in places such as fast-food restaurants when using credit cards.

The deeper issue, he says, is that shopping is considered a socially acceptable way to deal with stress or depression. Compulsive spending is now considered a disorder for a small portion of Americans - up to 6 percent, studies suggest. Worse, Mr. Roberts says, his research shows that 1 in 10 college students buys compulsively - a higher share than previous generations.

If someone is lonely, a salesperson might be the easiest one to turn to, says April Lane Benson, a psychiatrist in New York and author of "I Shop, Therefore I Am: Compulsive Buying and the Search for Self." Others may have come from frugal families and decided that they would never feel deprived again.

"Buying is such a quick fix, as compared to, say, going for a hike," she says. "It's important to discover the underlying needs and create the time and space to meet those needs in other ways."

Next week: making the tough choices. How four people climbed out of debt.

Are Americans' debts driving the economy into a danger zone? It's a huge and unanswered question.

While it's true Americans are carrying more debt than ever - about $9 trillion worth - most households are able to handle the load so far. On the other hand, rising interest rates and high oil prices cloud the horizon. Much depends on the economy's recovery.

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