College students face many hard financial decisions. As a young adult they need to figure out how to pay for college, earn some spending money, and still get a good education. This is a tall order for anyone, so it’s no wonder that many college students end up making some costly money mistakes. Unfortunately, these mistakes can actually 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.
Money Mistake #1: Credit Card Debt
Credit cards have become a way of life. They make paying for things extremely easy, and with many cards offering rewards programs or cash back, it’s easy to see their appeal. The problem is that the appeal often overshadows the drawbacks. Many cards have high interest rates, unfavorable terms, and allow students to spend more money than they actually have. In fact, if you get into the habit of only paying the minimum payment each month you could be stuck trying to pay off the card for over ten years!
Keep in mind that credit cards can play a vital role in establishing your credit history, so that doesn’t mean credit cards should be avoided. Instead, credit cards should be used to help build a solid credit history and the balance paid off in full each month. This will allow you to still collect the rewards or earn cash back while not having to deal with finance charges and long repayment periods.
Money Mistake #2: 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 and trash your credit score. Yes, seven years! That one late payment you made back in college will be haunting you years after you graduate when you are trying to get a loan for a new car or buy a house.
Don’t get careless with your finances just because you’re in college. It’s easy to make a mistake, but realize that those mistakes can prove costly even later in life. If you are going to utilize credit cards or other loans, just make sure you make your payments on time and don’t get in over your head.
Money Mistake #3: Lack of Budgeting
Does a college student really need to create a budget? You bet! In fact, this is one of the most important times to start budgeting. 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 students often have a limited or even sporadic income and if you don’t track this spending carefully, it’s easy to waste money on things that you could otherwise save.
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. After all, if you end up spending more money than you have coming in, you’re likely to end up with the problems above of getting into credit card debt and possibly ruining your credit.
Money Mistake #4: Using Student Loans & Scholarship Money Inappropriately
Many students have to rely on student loans & scholarships, and that’s fine. College tuition has gone up dramatically in recent years so it’s hard to keep up if your parents can’t help out that much. If the loans and scholarships are actually 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.
Using some of your student loan & scholarship money to fund a spring break trip in Mexico might make for a good time, but all you’re doing is hurting yourself by digging an even deeper hole that you’ll need to climb out of after you graduate. A lot of students assume that student loans will be easy to pay off once they graduate and get a good job, but things don’t always work out that way. So, if you use your student loan money appropriately you can be sure that you’re only taking on as much debt as you need to in order to receive the education you want.
Money Mistake #5: Reaching for an Expensive College
Does the name of the school on your diploma really matter? In some cases it certainly does. In other cases, not so much. A lot of students have dreams 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 that four year degree might not be the best use of money.
Another option is to go to an inexpensive school for your first year or two and then transfer. This allows you to save money and more time to build up additional savings to help pay for the rest of your degree. So, before enrolling in your dream school that you can’t afford, take some time to consider other options and see if you really need to attend that school to find the same job or if you can get some basic schooling done in your first year or two before transferring. It could end up being a savings of six-figures or more.
- Jeremy Vohwinkle, former About.com Guide