Debt Management | Students and Budgeting

Debt Management Tips for Students

Today's college students graduate with an average of $4,000 in credit card debt, in addition to student loans. While you're in college, it's easy to charge something or take out another loan without considering what it will do to your future budget, but you should. If you start learning debt management skills now, you'll be much better off once you enter the workforce.

Review these three student debt management tips to get started:

1. Control your expenses
2. Avoid Credit Card Debt
3. Be Careful with Student Loans

Student Debt Management Tip 1: Control Your Expenses

College students have a lot of expenses. The first step in debt management is simple money management. Learn how to track your income and expenses and ensure that your income is higher than your expenses. You will probably need student loans to cover your expenses. Student loans are generally used to cover the basic college expenses including:

• Tuition and fees
• Housing
• Food
• Books
• Transportation

Remember to explore all your federal student loan aid before looking for private student loans, to help you cover your basic costs. But remember, those are loans that need to be paid back. Don't overextend yourself. That means that you will have to carefully watch all your expenses, including your basic necessities, such as food and housing.

You should pay special attention to other budget categories, including .

• Snacks
• Luxury items (iPod, new cell phone, designer shoes)
• Entertainment (music downloads, movie tickets, concerts)
• Vacation (spring break, ski trips)
• Parties

Look at your budget carefully. If you need additional funds, then a part-time job or summer employment will help carry you through the school year. Avoid running up debt if possible.

Debt Management Tip 2: Avoid Credit Card Debt

There's a reason credit card companies swarm onto college campuses every year to sign up students in exchange for t-shirts and water bottles. It's because there's big money to be made in student credit cards. Most cards require only that you verify your status as a student in order to qualify for a $1-2,000 limit. They don't tell you that the interest rate is nearly 20%. They also hope you don't know anything about debt management.

Buying a computer with a credit card can be useful. However, if you pay only minimum payments, then you will end up paying a high price. For example, a $1500 computer charged at 18% interest rate, with 2% minimum payments, will end up costing you $3,862 over a 14 year and 7 month period. (If you paid $100 per month, then you would pay $1,712 over a 1 year and 6 month period).

A credit card can be a good tool for students. Not only does it help you build your credit history, but it can also be useful in emergencies. You do have to be careful, though. Many students overspend without thinking - treating your friends to pizza, buying a new cell phone, and buying snacks at the convenience store all slowly add up. Then there are the big purchases, like spring break, that can take months or years to pay off.

Use cash rather than credit for most of your purchases. If you can't afford it without charging it, then it's probably something you shouldn't buy yet. You will have to make similar decisions after college, so now is a good time to make this debt management method a part of your thought process.

Of course, you should still leave room in your budget for fun. Fun is an important part of college, but learning to do it without credit cards now will make having fun after college a lot easier.

Debt Management Tip 3: Be Careful with Student Loans

Most students can't get through college without student loans, but few students realize how much those loans will cost them after graduation. You should only borrow enough to cover your necessities, like tuition, books, and room and board. Avoid taking on additional student loans, especially high-interest rate private loans, to cover non-necessities like a vacation or a new TV.

If your student loans more than cover your necessities, consider accepting less financial aid. Remember that every penny you receive now has to be repaid with interest after you graduate.

The average starting salary is less than $50,000 a year. In addition to student loan payments, you will also have to pay taxes, rent, transportation, food, and other necessities out of your salary. The lower your debt is when you leave school, the better off you'll be. If you follow the above tips and learn debt management skills while you're still in school, you'll be in great shape when you receive your diploma.