Top Money Mistakes College Students Make
Debt ranks among the biggest problems for most students
College students face many hard financial decisions when it comes to managing their money. As a young adult, they need to figure out how to pay for college, earn some spending money, and still get a good education. That's a tall order for anyone, so it’s no wonder that many college students end up making some costly money mistakes.
Certain money missteps can cause damage that lingers for decades, so making sure your finances are in order even as a college student can go a long way in helping you get a good start after school.
Here Are the Biggest Money Mistakes College Students Make, and How to Avoid Them
- Racking Up Credit Card Debt: Credit cards are a convenient way to pay for things, and many cards offer rewards programs or cashback incentives that add to their appeal. The problem is that these benefits often overshadow the drawbacks, chief of which is the potential to accumulate debt. Many cards have high-interest rates, unfavorable terms, and allow students to spend more money than they have. If you get into the habit of only paying the minimum payment each month, you could be stuck trying to pay off the card long after graduation day.
Credit cards can play a vital role in establishing your credit history, so that doesn’t mean you need to avoid them altogether. Instead, credit cards should be used wisely. That includes applying for new credit only when you need it, paying your bill on time every month and only charging what you can afford to pay in full. It will still allow you to collect the rewards or earn cashback while not having to deal with finance charges and long repayment periods.
- Ruining Your Credit Score: While we’re on the topic of credit cards, it’s important to highlight the dangers that can come with going into credit card debt. Many college students end up completely trashing their credit history by just making a few poor decisions. Remember, missed payments or other negative marks will remain on your credit history for seven years, severely damaging your credit score. Making a single late payment in college can come back to haunt you later when you apply for a loan for a new car or try to buy a home. Again, the most important rule to follow with credit is to always pay on time. Keeping debt balances low and using different types of credit can also help contribute to a solid credit score.
- Not Using a Budget: College is one of the best times to get into the budgeting habit. As a student, it’s easy to get complacent when you don’t have a mortgage to pay, kids to feed, or other significant money worries. The problem is that you might have a limited or even sporadic income and if you don’t track your spending carefully, it’s easy to waste money on things that you don't necessarily need.
Start by creating a simple budget. It doesn’t take long, but if you take the time to analyze your income and where you’re spending money you can get a better idea of where your money is going and where you can cut back. Remember to leave room in your budget for savings. Even if it's only $5 or $10 a week, that can add up over time.
- Misusing Student Loan Money: Many students have to rely on student loans to pay for a degree these days. College tuition has gone up dramatically in recent years, so it’s hard to keep up if your parents aren't able to provide financial support. If the loans are used for school expenses, that’s one thing, but all too often students will use some of this money to buy things that aren’t essential for school.
For example, using some of your student loan money to fund a spring break trip in Mexico might make for a good time, but you're digging an even deeper hole that you’ll need to climb out of after you graduate. Stick to using your student loan money only for necessary living expenses and even better, consider sending any excess money to your loan servicer while you're still in school as an advance against repayment.
- Reaching for an Overpriced College: Does the name of the school on your diploma matter? In some cases, yes it does. In other career paths, perhaps not so much. Many students dream of going to a prestigious school or head out of state, but this may not be the best decision financially. With some degrees, it may not matter as much where your degree comes from so spending an extra $100,000 on a degree may be wasteful.
Choosing a less expensive public university or attending a community college for the first two years then transferring may be the better option, cost-wise. Before enrolling in your dream school, consider what the true return on investment may be. Take time to explore other options and see if a prestigious school is the only way to pursue your chosen career path. You may find that a different school proves to be the better bargain and in doing so, you'll position yourself to begin your professional career with less student debt.