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A consumer pays with a credit card at a store July 6, 2010 in Montreal.

Ryan Remiorz/THE CANADIAN PRESS

The first big test many university students face often has more to do with handling their financial affairs, in particular credit cards, than with scholastics. Unfortunately, say credit counselling agencies, it's one that too often many fail.

While some will handle the monthly obligation, many will eventually become overwhelmed and quickly spiral out of control, says Laurie Campbell, CEO of Credit Canada Debt Solutions.

"There are so many first times (for students) that this (a credit card) is just another piece of ammunition for them to get themselves in trouble," she said in an interview.

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Campbell said the credit counselling group sees many young people in their 20s who are struggling with debt racked up during their university years. At least 80 per cent of these clients have credit card debt along with student loans.

Some will vow to use the card solely for emergencies, but weaken their resolve by charging small unplanned purchases.

Their ability to pay the bill will be tested in mid-October with the arrival of the first statement and accelerate in the new year.

Credit cards have become pervasive in Canada with more than 76 million cards in circulation last year, more than double the number in 1999, according to the Canadian Bankers Association.

A 2013 study of more than 22,500 undergraduate university students found that 85 per cent had at least one credit card, including 29 per cent with two or more.

The data compiled by 28 universities found that 80 per cent regularly paid off their balance monthly but those that didn't had an average unpaid balance of $2,959. A decade earlier, 81 per cent of students said they had at least one credit card with the average unpaid balance totalling $1,279.

The counselling agency urges students to talk to their parents before getting that first credit card because becoming delinquent can stain a credit record for six or seven years. They suggest students wait until third or fourth year when they get a handle on their spending.

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Financial educator and columnist Brenda Shanahan said there's plenty of time for students to get cards and build their credit history.

"Why not build savings instead," she said. "When you're out there in the working world and have a good job, people are going to lend you money."

Shanahan said young people who get themselves into heavy debt are often trying to keep up with their peers and spend on gadgets and entertainment. But they end up stressed as they struggle to make rent and credit card payments and, in the worst cases, end up being chased by collection agencies.

Stacy Yanchuk Oleksy, director of education for the Credit Counselling Society, said access to credit can make life easier and isn't a bad thing if used properly.

But she said many students lack the financial education and are stunned when explained how damaging high credit card interest can be if the monthly balance isn't paid off in full.

"We don't talk about money in Canada, it's probably one of the last taboos," she said from New Westminster, B.C.

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Credit is so easily accessible that it's a challenge for society let alone students, but ultimately it's about personal responsibility, she said.

"Nobody holds a gun to my head and makes me use my Visa."

Penelope Graham, editor of rate comparison website ratesupermarket.ca, said credit cards don't have to be debt traps and can be a great tool for building a credit history needed to eventually buy a car or get a mortgage.

But she cautions students not to succumb to the heavy pressure from financial institutions to sign up to the first offer they see.

"Students are a very attractive segment for financial companies to go after because they're new consumers and if you get them early on you're likely going to create a loyal consumer for life," she said.

Graham urges students not to be swayed by welcome offers such as a free T-shirt or chance to win a trip and instead compare features such as interest rates and fees.

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She said students should avoid cards with travel rewards that have high annual fees. They should instead seek no-fee options that provide cash back for groceries or free movies that can provide entertainment on a constrained budget.

The Financial Consumer Agency of Canada offers the following tips to save money with credit card use.

  • Pay the monthly balance in full or, at worst, make more than just the minimum payment
  • Pay the bill on time to avoid interest or sign up for automatic payment from your bank account
  • Avoid cash advances that will immediately add interest charges
  • Limit the number of credit cards and keep a low credit limit to avoid overspending
  • Check the monthly statement for billing errors.
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