Debt Management for Students

Facts    Solutions    Budgeting    A Quick Lesson in Personal Finance    Avoid Overspending    Student Loans    Credit Cards    

Checking Accounts    Manage Debt Now    Close Look at Credit    Record Keeping    Money Saving Tips    

Whether you are just starting college or graduate school or if you are leaving college to start a new career, you will be facing new financial challenges.

If borrowing is or has been a part of your financial history, you may want to educate yourself about the consequences of excessive debt, the rights and responsibilities of a borrower and of managing finances while in school, and after graduation.

Facts

According to recent estimates, about 50% of all college students leave college with a diploma and debt of about $17,500 with close to $13,000 in student loans and the remainder on credit cards.

Excessive debt comes from wanting, and getting, everything now. Debt obligates your future income. Debt can be expensive. Interest payments on debt work against you.

A survey of 1996 bankruptcy filers by Visa USA reported that 8.7% were aged 18-25.

Nellie Mae Corporation, a leading non-profit source of college student loans, reports that 65% of applicants have credit cards, 20% having 4 or more cards. The average undergraduate in 1996 carried a credit balance of $2,226, while 14% reported balances between $3,000 and $7,000, and an average available credit limit of $6,122. Similar statistics for graduate students were higher.

Solutions

Develop a financial plan, or budget, to balance spending with income.

Use credit wisely; pay off credit card balances monthly. Protect your access to future credit by maintaining a good credit history.

Learn to use financial tools such as bank accounts, ATM cards, and debit cards to manage your money effectively.

Budgeting

Budgeting is the key to keeping debt in check.

A budget is just a plan of how you will spend your money. After you create a budget, follow your budget as closely as possible. Write it down! Keep track of expenses to see if you are sticking to your budget plan. Minimize or eliminate extras. Stereos, motorcycles, new wardrobes and new cars will bury you in debt! Cut back on road trips and pizzas.

A Quick Lesson in Personal Finance

Borrowing for school has become a common practice for college students. Students should look at borrowing to help meet educational expenses as an investment in their future, but should use common sense and good personal finance practices. Don’t feel alone if it seems like there is never enough money to make ends meet. It happens to almost everyone at one time or another. The key is to avoid making bad financial decisions that you will have to live with later on.

Make sure you have researched all potential sources of scholarships and grants before borrowing. The Financial Aid Office is a great resource center that you can use to find ways of paying for school.

Remember why you are here! While in school, borrow the minimum needed to achieve your goal of a college degree and avoid accumulating any more debt than is absolutely necessary. Although the current job market for new graduates is good, that paycheck may not go as far as you think.

Avoid Back-to-School Overspending

As the days become shorter we realize that fall is just around the corner, and so are those back-to-school items. The following are some tips to help you create your own "Back-to-School Spending Plan".

TIP #1: Try to set aside money each week to prepare for back-to-school shopping. Try to pay with cash wherever possible or use layaway if available.

TIP #2: Create a master list of needed school supplies. Buy in bulk and save some money.

TIP #3: Develop a spending plan before you begin shopping. Determine a dollar amount both appropriate and affordable to spend on each item.

TIP #4: Analyze what is needed. Examine what you have from last year to determine what is wearable and what needs to be replaced. Set priorities on purchases. If your priorities include a more expensive item than the plan will permit, start saving earlier.

TIP #5: Try to shop as early as possible and avoid the last minute rush.

TIP #6: If your budget is very tight, keep in mind consignment shops.

TIP #7: Check for sales before shopping.

TIP #8: Use the Internet to shop for discounts. You may be able to download coupons for popular stores at different web sites including, www.coolsavings.com and www.mycoupons.com.

TIP #9: Compare price and quality to ensure the best deal.

Source:     CCCS Credit Counseling

Student Loans

Loans should not be confused with other types of financial aid such as grants that do not have to be repaid. After you graduate, and in some cases before, you will be expected to begin repayment of student loans, and payments can be hundreds of dollars per month. Unnecessary borrowing now may force you to put future goals on hold, while you repay student loans.

Because you are a student you will be approached by dozens of people who are willing to bet on your future success. They will try to convince you that it’s smart to buy now and pay later and will tell you that you deserve that new car or truck or stereo or whatever. In some cases they will not even require you to pay anything until you have graduated. It’s hard to say no so why not go ahead and buy now.

There is no harm--- or is there?

Refer to the chart below to determine what your student loan payment will be after graduation.

Many people think that credit cards are "free". In reality, you pay for the use of credit cards in every purchase you make. The merchant providing the service pays the credit card company and charges you in the price of the goods and services you buy (1.5 % to 3% or perhaps more). If you pay your credit balance each month, that is all you pay. If you carry your balance forward, you will also be charged interest of up to 19% or more on your balances.

Things to know about credit cards

Credit cards can be a very handy tool for students if used correctly. If not, they can become a burden and can cost you a great deal in the interest that you pay the credit card companies.

When applying for a credit card look for the best deal. All credit cards are not the same!

1. Look for the lowest interest rate you can find.

2. Look for a card with no annual fee.

3. Use only one credit card.

4. Don’t charge more than you can pay off the next month.

Paying balances in full at the end of each month is the best way to make sure that credit card debt does not get out of hand.

Avoid using credit cards to buy things that you could not afford to buy if you did not have one.

Even small card limits of $500 to $1,500 can seem enormous when you don’t have the money to pay your balance and interest charges begin stacking up every month.

Checking Accounts

It is highly recommended that all students have a checking account. A checking account will allow you to:

Manage your money.

Have an ATM (automated teller machine) card or a checking card that will allow you to make purchases or get cash without having to write checks.

Regardless of the financial institution you choose, if you have never had a checking account, it is important to learn how they work before you begin writing checks. Your bank will be happy to help you with this. Just ask them at the time that you open your account.

A checking account is an important tool in managing your money. An essential part of managing your checking account is balancing it every month to avoid problems.

If you deposit cash you should be able to write checks immediately.

If the deposit is in the form of a check there may be a delay of several days before your bank lets you write checks against funds you deposit to your account.

If you have written checks in the few days prior to withdrawing funds from an ATM machine, the balance shown on the withdrawal receipt may be for more than you actually have to spend. You should keep a record in your checkbook of all checks, withdrawals, and deposits so that you know exactly how much money you have in your account.

Insufficient funds checks are expensive. Not only will you pay "bad check" fees at the merchant location, but you will also be charged a fee at your bank. That can mean $50 per check in penalties. To avoid bad checks and penalties, keep accurate records of your checks, withdrawals and deposits and reconcile your checking account monthly.

Go easy on the ATM’s! Take out your weekly allotment of spending money and make it last. Don’t go back to the ATM until the following week, this way you are more likely to stay on budget. Use ATM’s that don’t charge a fee when you transact business.

Manage Debt Now!

Stop spending money on things you don’t need.

If you can, live at home for a few months after graduation to save on rent.

Don’t use your credit card.

If you have a summer job, work overtime or get another part time job and pay off your credit card debt.

Remember, you can only spend your money once. After that you are spending the credit card company’s money and they charge you big time for the privilege!

Consumer Credit Counseling Service is a free nonprofit foundation, available to help you manage your debt. Call (800) 388-2227 or contact them at www.creditcounseling.org.

Visit the Nellie Mae Debt Management Advisor at: www.nelliemae.com/edvisor/ for additional information.

Close Look at Credit

Maintaining good credit will help you:

Rent an apartment

Buy a car or house

Get good interest rates on loans and credit cards

Enable you to continue your education.

Signs that you might have a problem with too much debt are:

You regularly spend more than you take in every month.

You charge for small purchases such as groceries and gas because you don’t have cash available.

You cannot pay more than the minimum on your credit card.

You are receiving calls from credit collectors.

Record Keeping

Keep all copies of loan, credit card and checking account paperwork.

Keep all notification from lenders, guarantors and servicers.

Keep all copies of utility bills, etc to help in making an accurate budget.

Read and respond to all mail.

$ Money Saving Tips $

Figure out a monthly budget and stick to it. Spending an extra $10 to $20 per week adds up quickly and you may find yourself running out of money if you don’t budget accordingly. Keep accurate, organized records of your finances to help you plan and budget.

Be a well-informed borrower. Borrow as little as possible and know the differences between your loans. Know the terms and conditions of each loan you borrow and understand your rights and responsibilities.

Be sure to take advantage of the maximum number of grants, fellowships, and scholarships available to you.

Be realistic about your salary expectations once you graduate. Educate yourself about the job market that you plan to pursue. Plan for the future by estimating a realistic future salary and figuring your discretionary income.

If awarded Federal Work Study, set your work schedule and make sure you work your full schedule to maximize on earnings potential!

If you need furniture you can often find some good deals on barely used furnishings and appliances at thrift stores.

Thrift shops can also be a great place to get clothes at a fraction of retail price!

Take advantage of free entertainment on campus and in the surrounding community. There are many wonderful things to do that cost little or nothing. Check out the school or local community paper for listings.

Pay off your credit cards, then limit your credit card use to emergencies only. Be sure to pay them off each month to avoid paying high interest rates. Establish and maintain a strong credit history for the future. If you do need a credit card, be sure there is no annual fee and choose one with a low limit.

Don’t bring a car to college unless absolutely necessary. Maintaining a car is expensive. Public and campus transportation is generally accessible and more affordable.

When traveling, be sure to look for discounts before booking flights or renting cars. Many agencies give student discounts.

Be careful of making too many long distance calls that can add up very quickly. If you do make long distance calls make them at off-hours when the rates are lower. Also, sending e-mails and postcards is a great way to keep in touch!

For school supplies and household items, shop at discount stores which are usually less expensive then convenience stores.

Keep your student ID handy at all times. Don’t hesitate to ask museums, movie theaters and public transportation, etc, if they offer student discounts.

Look for sales and use coupons when making purchases. Most items you want go on sale at some point.

Try bringing your lunch or coffee some days. Buying them each day adds up!

Take advantage of tax benefits related to educational loans.

Source:        Debt Management Counseling

                   Jan Marie Coombs - Citizen's Bank Education Finance    

Keep in mind that the value of your Worcester State College education will become a life-long asset to you. Not only an asset of monetary value but one of how you approach a lifetime of experience and challenges. The development of prudent financial decisions such as how much you borrow or spend while in college and the judicial use of credit cards and checking accounts and other financial management tools will affect how you approach finances and debt management in the years to come. 

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