Something students often need to think about at the beginning of the school year is financial expenses.
What may have been just a car, insurance or credit card payment during the summer quickly turns into something much bigger when accumulated with student loans and rent.
Making smart financial decisions while in college does not have to be hard. It’s a matter of monitoring spending, learning some basic credit card and student loan options and understanding the consequences that overspending and overborrowing can have.
The first logical stop when discussing credit is how to build good credit. Elizabeth Martinez, account recruiter for Genesis Financial Management Inc. of Tampa, suggests signing up for one credit card with a low limit to show that you can handle making monthly payments on time.
“Resist the temptation to get multiple credit cards. I remember that when I went to FSU, creditors were always bombarding the students with credit card applications. If you avoid these, you’ll be better off in the end,” Martinez said.
Another way to build credit is by purchasing a larger item with a secured loan (this means that the purchase is backed by collateral) like a car or a home and making monthly payments, Martinez said.
If you already have some credit and want to improve your credit rating, focus on paying existing unsecured loans (debts not backed by collateral) like credit cards, gas cards and personal loans.
“When applying for a credit card, always read the fine print and look for what your long-term interest rate will be because a low introductory offer can be deceiving,” Martinez said. “Also check for any annual fees and also for fees that may be charged to you if you do not use your credit card on a monthly basis.”
Another tip that Martinez gives is to not apply for any store credit cards because the interest rates are usually higher than with traditional credit cards.
“Having a gas card is usually okay because the interest rates are a little lower and because gas is a necessity, however, you should always avoid store credit cards,” Martinez said.
According to www.collegecreditcounseling.com, the average undergraduate college student owns three credit cards and has an average credit card debt of $2,748. Graduate students have an average debt of $4,776. Combining thousands of dollars of debt from student loans with the monthly payments of credit cards can result in an overwhelmingly large debt.
It is important for students to really understand the significance of the financial decisions they make while enrolled in school. Decisions regarding student loans should not be taken lightly because this is money that starts to come out of the borrowers pocket six months after graduation.
The first thing to look at when considering a lender for a student loan is the service that they provide to students. Preferred lenders on the list have a reputation for making sure that funds reach the school and the student on time.
Many of the preferred lenders on the school’s financial aid website also offer discounted interest rates to borrowers who re-pay their loan on time every month. Many competing lenders offer similar incentives.
“One of the biggest issues of concern is students borrowing the maximum they can borrow every semester,” said Leonard Gude, director of Financial Aid. “Then if they fall a little behind and postpone graduation for a semester or two, they run the risk of reaching their aggregate borrowing limit before they graduate and can’t borrow any more money to finish school.”
Gude strongly encourages students not to borrow more than they need and to monitor their aggregate borrowing.
The limit an undergraduate student can borrow in aggregate loans is $23,000 in subsidized loans (loans that have the interest paid by the government while still enrolled in school). A student may also borrow unsubsidized loans (loans that gain interest 60 days after they are taken out) for a total of $46,000 for both types of loans combined.
A graduate student may reach a total of $65,500 in subsidized loans, adding unsubsidized loans can bring that total up to a maximum of $138,500 for all loans.
“Borrowing these large amounts of money means a heavy monthly payment after graduation,” Gude said. “Student loans have a maximum repayment period of 10 years, and, even though there are options for extended payment plans through loan consolidation, these types of plans add extra months that the lender has to pay added interest.”
Gude recommends avoiding loan consolidation if at all possible.
“When interest rates were higher, consolidation wasn’t that great of a deal, now that rates are lower it is a little bit better. But the only reasons we suggest to consolidate are if a student has borrowed from multiple lenders or if they have borrowed both Perkins loans which have a fixed rate of 5 percent and from Stafford loans which have a variable interest rate capped at 8.5 percent,” Gude said.
With consolidation the borrower only receives one bill, which can be an advantage to having to pay a variety of lenders each month. And it is possible to consolidate loans and to still stay within the 10-year time frame to pay off the student loans by making larger monthly payments, Gude said.
“The Office of Financial Aid hosts a financial management program each semester. This summer we held four sessions for the summer-institute students and had approximately 150 students attend,” Gude said.
The financial management class is free to students and primarily discusses how to budget funds so that students don’t end up in trouble with debt.
The standing of a person’s credit report affects many aspects of their life. Your ability to get a job, or to buy a house or car can be greatly impacted by what your credit report says about you, your character, and your spending habits. Because of this, it’s important for students to monitor their spending.
Tips for keeping good credit
1. Create a spending plan that includes living expenses and school expenses so that you can estimate how much money you need to get through a semester or through a school year.
2. Only borrow from student loans what you need, remember that student loans are not free money, you must repay them with interest.
3. Review your spending plan each semester to be certain that your money is going where it should.
4. When applying for a credit card read the fine print, you want to know what the long term interest rate is. Do not be fooled into thinking that just because the introductory interest rate is low that the long term rate will also be low.
5. Try not to put living expenses like food and utility bills on credit cards, instead pay with cash, debit card or check
6. Don’t use one credit card to pay another credit card; this will not reduce your debt.
7. If you have had a particular credit card for more than six months, have made all of your payments on time and have not overdrawn your account, call the credit card company and ask them if they will reduce your interest rate, they will most likely say yes any you’ll save some money.
8. Always make payments for your car, insurance, credit cards, utilities, rent and loans on time. If you can’t make a payment on time call the institution you owe the money to because chances are that they will be able to work with you and you can save yourself additional interest or late fees.