Upon graduating, many of today’s college students find themselves up to their ears in debt. The biggest chunk of these debts generally comes in the form of student loan debts; those debts that a seemingly ever-increasing number of students need to take out to finance their educations. On the other side of things, however, is credit card debt. Today’s college students are using their credit cards to charge purchases more than ever before. Both of these types of debts, student loan and credit card, can make life extremely tough for students after they are done with school and on their own in the real world for the first time.
A big part of the reason that many students fall into debt is that they just don’t know good money management skills. Young kids, fresh out of high school, are often thrust into college and all of the responsibilities that living alone entails. The simple fact of the matter is that many of these students are just not prepared to manage their money responsibly or keep track of their finances themselves.
But that’s just the way it goes. There is no changing the facts that college students need to take out loans, spend money, and use credit cards for occasional purchases. However, it is important that you have a financial game plan when you are in college both as a future safety net and to keep yourself safe in the present. You should start learning money management and debt management skills now, as soon as possible, before you enter the workforce.
The three debt management strategies for students that are discussed below will help keep you on top of the debt game.
Keep Track of Your Expenses
Before you can form good debt management habits, you must first form good money management habits. Luckily, setting up a money management plan is easy.
The first thing to do is keep track of your income and expenses. When you are in college, you will most likely have a lot of expenses and not very much income. For this reason, you will probably need to take out student loans. It is important to keep track of your student loans – how much you are getting, from whom, and the terms of the loan – as part of your money management plan.
Creating a simple spreadsheet is a great way to keep track of how much money you are making and spending. Create categories for each type of expense – for instance: tuition, rent, books, transportation, food, entertainment, gas – and keep track of every single cent that you spend. Knowing where your money goes is the key to being financially responsible.
Most of the time student loans can cover the bulk of your expenses related to your education such as tuition and books. You can even use your loans to help pay for housing, transportation, and food. However, before you begin taking out loans, you should exhaust other financing options such as financial aid and grants. These are like loans except that you don’t have to ever pay them back.
Avoid Credit Card Debt
As a college student it is of utmost importance that you avoid credit card debt, especially because you probably have your fair share of student loan debt already.
The best tip to avoiding student credit card debt is to limit the amount of credit cards that you use. Your best bet is to only have one credit card that can be used for emergencies only. The rest of the time you should only use cash, money that you actually have. Charging, for many college students, can quickly spiral out of control.
In fact, that’s why you see so many credit card companies swarming college campuses. Signing up for new cards is easy and many students are able to qualify for huge initial limits on their cards, oftentimes up to $1,000 or even $2,000. While it would be great to take out a loan this size if the terms were solid, they almost always aren’t for college student credit cards. The terms often specify interest rates that are nearly 20% (though most companies won’t tell you this).
As mentioned above, your best bet is to simply not use a credit card. If you are making a purchase that you don’t think you can pay for right away, you’re almost always better off not making it until you can pay it off right away. Simply put, if you can’t pay for it in cash, don’t use your credit card, unless it is an emergency (and an actual one).
Be Responsible With Your Student Loans
In today’s day and age, the majority of students can’t get through college without taking out at least some amount of student loans. Even so, most students don’t realize that their loans are going to be incredibly hard to pay off after college, even with a well-paying job. The reasons for this are numerous but they break down into two main ones: loans are always a lot harder to pay off than they seem and interest means you’ll be paying more than the initial sum of the loan anyway. (Check out our post on finding the lowest interest rates for student loans for more tips on finding the best deals to finance your college education.)
Because of this it is essential that you only use your student loans for what they were meant for: tuition, books, and room and board. Furthermore, only take out enough to cover these expenses and not any extra. It is all too tempting to use student loans to cover non-essential items like vacations, eating out, or a new television.
Staying out of debt as a college student is far from simple. In fact, in many cases, it can be all but impossible. This makes good money management and debt management strategies (like the three discussed above) all the more important for every college student to know and take to heart. They will help keep you financially sound and secure for years after you graduate.