Today, students are having a harder time paying their bills and putting money away for the future. The Canadian Federation of Students notes that the grants and part time jobs that helped students pay for post secondary education have become rarer, leaving students with an average of $27,000 just in student loan debt upon graduation. This doesn’t factor in any credit card debt that may have been accumulated and that overwhelms many students. With some simple financial knowledge, students can avoid the mountain of debt and save money.
Cutting Down on Expenses
The first step to avoiding debt is by cutting down on regular expenses. College and University students often spend a lot of money on purchases like takeout food and drinks that can be easily avoided. Sitting down and figuring out a monthly budget for all expenses can help get these expenses under control. Factor in expenses including entertainment and takeout, as it is unreasonable to completely cut out this type of spending.
While having fun can account for much of student spending, tuition and housing typically makes up the majority of their expenses. Students should research their options for funding their education, paying particular attention to options that do not have to be repaid. While loans are easy to find, excessive loans burden millions of students. Look into funding like grants and scholarships to pay for College or University while cutting down on debt.
Handling Student Credit Cards
Credit card companies often market cards towards students, which can become a problem when students don’t know how to handle the responsibility of using a credit card. While students do not have to completely avoid credit cards, there are some practices that students should become familiar with before signing up for their first card.
Choose a Credit Card Wisely
There are likely to be many offers when a student starts College or University, and they may think that applying for as many as possible will give them the best chance of being approved for one or two. However, each application will result in a credit check, and multiple checks in a short period can negatively affect credit. It is also possible that the student will be approved for most or all of the cards that they have applied for, leaving them with entirely too many cards. Instead, students should research the benefits of each card available and choose the best one or two cards based on these benefits.
Credit cards should not be used for large or frequent purchases, and students should not charge more than they can afford to pay off in full per month. Paying the balance in full every month allows a credit card user to avoid interest and finance charges, and prevents a build up of debt. An effective method of avoiding mounting debt is including the amount that can reasonably be charged on credit cards every month in a budget, and using the card only for necessities that are already included in the monthly budget.
Prepaid Credit Cards
Students who are not ready to take on the responsibility of a credit card should consider a prepaid credit card. These cards have the logo of a major credit card company while working like a debit card. An added benefit of prepaid cards is that parents can add funds to a student’s card online while the student is away at college.
Saving for the Future
If they haven’t already, students may be interested in starting a savings account while in college. This is a worthy goal, but it is important to keep in mind that savings should not take precedence over paying off current expenses. Consider the fact that student loan interest is generally higher than the amount of interest that can be earned on investments. If a student puts money into savings and takes out more student loans to cover current expenses, they are actually losing money in the long run.
Finances are a difficult subject for students when student loan debt and credit card balances are mounting. Students should do as much research as they can into finding alternative ways to pay for college, particularly focusing on methods that do not need to be repaid. Credit cards are often a financial pitfall for students, but if used wisely can help build up credit, which will serve them well in the future.