11/28/2012 09:47 am ET Updated Jan 28, 2013

How I Got in (and Out of) $5,000 Credit Card Debt

When I saw the Citibank credit card offer, designed specifically for students, I hesitated to throw it away. In the past, whenever I had received credit card offers in the mail, I didn't hesitate to tear them up and not think twice. Now the opportunity crept in my mind and made a nest. Considering I was preparing for a move I couldn't afford, the offer was perfect timing.

Because my financial aid refund wasn't coming for another month and no one could loan me the money, I figured the credit card could pay for what I couldn't, plus any other expenses along the way until I received the refund.

I told myself I would only use it for moving-related expenses. The fact that I would have a limit -- maybe $1,000 -- was comforting. I couldn't get into too much trouble if they put a cap on how much I could spend, right?

While filling out the online application, I hit a roadblock when it asked for my monthly income. My less than part time job would never convince the credit card company that I could handle a credit card. Panicking and still determined to find a way to be approved, I looked to Google. I typed, "Is financial aid considered income on a credit card application?" into the search bar. The question had been asked before, as there were numerous discussion forums with varying answers, one recommending applicants check the credit card company's terms and conditions. When I did that and saw nothing about listing financial aid as income, I went ahead with it and was approved in less than an hour for a $4,000 limit.

A University of Houston Law Center survey found that a lot of students "who sign up for cards used student loan proceeds as part of the income they reported." Some might say I should've known better and that Citi doesn't have to include financial aid in the fine print, others would say it's irresponsible and unfair for Citi to accept financial aid as income. So who is to be held accountable: the credit card companies or the students filling out the application?

It's not listed in Citi's credit card application, but financial aid does not technically count as a source of income. According to numerous studies, my situation is not uncommon among college students. Some credit card applications don't require a cosigner and the terms and conditions are very vague. If the student doesn't make a point to call up the company, a lot of questions are left open to interpretation. Perhaps if students weren't approved so easily, the level of student debt would decrease.

That's exactly what happened to me. Every time I missed a payment, a late fee of $50 was applied to my account. Because I could only afford a minimum monthly payment of $50, I was basically only paying back the interest incurred. It racked up dangerously fast and I lost sleep wondering how I could get out of debt.

After about a year, when my balance was nearing $5,000, I was receiving offers to settle for about half the balance and my account was turned over to a collections agency. The multiple daily phone calls asking me to make a payment were not only stressful, but frustrating and headache-inducing. The payments I could make were only the minimum balance and usually late, which only resulted in more calls which, eventually, I ended up blocking. When I got my financial aid refund last term, it was enough so that I could finally accept the settlement. I negotiated with the company to pay less than half of what I owed and my account was taken care of.

The settlement will be reported to the credit bureaus, but notes like that only last a short amount of time compared to debt consolidation. When I look at the alternative of being in debt for the next five years, I'm happier with the settlement, whatever the repercussions may be.

The problem with student credit cards is that a lot of credit companies assume students are able to pay it back. They are counting on us not having any financial planning knowledge, and we don't. I remember taking one personal finance class in high school, but it didn't cover anything about credit cards, which poses another question: what are students learning in school about how to build credit in a healthy and manageable way? And where do parents come in?

It's disappointing that there doesn't seem to be a trusted, safe way to earn a little good credit. If we're failing to be financially responsible now, while we're still in college, what does that say about our futures, when only more "big" decisions are to come?