College is a stressful but exciting time for many young people, and, in the face of assignment deadlines, class schedules, and taking care of basic living needs, many young people unfortunately make serious financial mistakes during their college years. These mistakes can haunt college students for years after graduation, complicating personal finances and even driving some students into debt. The following are some of the most common financial mistakes among college students so you know what to avoid.
Accumulating Credit Card Debt
A credit card may promise 0% interest for an introductory period, cash back rewards, and other enticing incentives, but college students must know how credit cards work before signing up for them. A misused credit card will reflect against the cardholder’s credit score until he or she pays the balance. Missing payments, late payments, and high interest rates can be a recipe for disaster. However, a responsibly used credit card can help a college student start building credit. As long as the student pays the balance on time each month, the student can potentially leave college with a great credit score.
Not Understanding Credit Score
If you’re going to use a credit card to improve your credit score, you should probably understand how credit scores work. Your credit score hinges on data from the three major credit reporting companies. Learn how to track your credit score before signing up for any type of financing and take advantage of free credit report offers from reputable credit report companies. Some of these companies will even offer credit alerts to help you keep control over your credit at all times.
College students have plenty to worry about when it comes to managing their time for classes, studying, homework, and partying. Budgeting often falls by the wayside for many freshman, leading to financial uncertainty that can easily disrupt the college experience. College students unaccustomed to managing their own bank accounts may waste money needlessly or spend out of control, leaving them little for basic living expenses. Develop a budget before your freshman year and do your best to stick to it.
Misusing Loan Money
If you help your high school student secure financial aid as a cosigner, you want to make sure your child doesn’t misuse the loan funds. Many parents simply opt to control the loan disbursements and pay for their children’s expenses, but some college students take charge of their own student loans. A spring break vacation may sound tempting, and a college student may see all the zeros on a financial aid statement and think there’s plenty to burn. Abusing financial aid can not only leave a student broke before graduation but could also mean penalties for violating the terms of the financial aid agreement.
Choosing an Overpriced School
You may have dreams of attending a specific school, but are you sure it’s the right one for you? Are you certain it’s the best choice for your chosen study path? Is it reasonable for your price range? Some schools are dramatically more expensive than others. If your child is hopeful to attend a specific school, make sure they are choosing that school for the right reasons. If it is simply beyond your financial capabilities, look for alternatives like scholarships or attending community college or a state college and then transferring credits to the desired university.
Preparing ahead of time, sticking to a budget, and understanding financial obligations are the keys to successfully navigating money issues during the college years.