As you high school juniors prepare to apply for financial aid and go off to college after next year, decide which story you want written about how you handled your finances as a young adult.
Many young people graduate from college not only with historically high student loan debt despite financial aid, but also with thousands of dollars of credit card debt at very high rates of interest.
Too often, graduates don’t land that big job they counted on. So the burden of their debt, which they now have to repay in addition to their ongoing living expenses, leaves them struggling in ways that come as a real shock after living a pretty nice lifestyle through credit cards in college.
I wouldn’t want that to be my story.
Then there are the students who have to file for bankruptcy. And the students who handled their credit card debt so poorly and destroyed their credit by paying late, missing payments or exceeding their credit limits, that they lost out on jobs, apartments, car loans and student loans.
Who would want to be the subject of those stories? There are other stories, though, too. Much nicer ones. Stories of college students who stick to realistic budgets in college. Who know the difference between needs and wants, live within their means and work hard to minimize their debt. Students who work the highest-paying jobs they can find through college, use cash instead of plastic and always look for ways to save money.
Those stories would be my choice. Here’s how to make it yours, too.
• Ignore credit offers. When you get to college, you will be aggressively solicited by salespeople, e-mail and fliers to sign up for credit cards. You’ll be offered attractive free gifts, sometimes even iPods. You’ll be amazed at the credit limits you’ll be offered. But don’t get a credit card until at least senior year of college.
They want you to have those cards not because they think you will be financially responsible but because they hope you’ll use them irresponsibly and end up paying them a lot of interest and hidden fees.
• Set up a budget. If you don’t have a budget, you won’t know if you’re spending your money on needs or wants. Keep track of your charges, and you will be amazed at how quickly small amounts can add up. If once a week you have a Starbucks iced latte ($4), a pizza delivered to your dorm or apartment that you split with two friends ($4) and half-priced appetizers at Applebee’s with some friends ($12), that’s $20 a week or $1,040 a year. Over your four years in college, that’s $4,160 that you could owe on your credit card when you graduate.
A good way to avoid this debt is to follow a simple rule: If you can eat or drink it, pay cash for it. If somebody asked you how you built up so much credit card debt, you wouldn’t even remember those trips to Starbucks and Applebee’s, because they seem like such ordinary things to do. Add a few concerts and spring breaks to that, and you’re in trouble.
• Visit the CARE Program Web site, careprogram.us, to download the handouts on creating a realistic college budget and financial tips for students.
• Plan for emergencies. Save at least $500 in an emergency savings account for when you go off to college.
• Don’t give in to peer pressure. You will meet other people in college who have more money than you or who are willing to go into debt to have more stuff. Don’t let their choices affect your decisions.
Hon. John C. Ninfo is a U.S. Bankruptcy Court judge. Visit his site at careprogram.us.