How to manage money and avoid credit card debt while in college
When you’re away at college, it can be easy to get carried away and spend money on things you don’t necessarily need — or worse, rack up credit card debt. To help save college students from going broke while at school, Yahoo Finance writers Kristin Myers and Daniel Roberts joined host Brittany Jones-Cooper on the BUILD Series stage on July 29 to talk about how to budget and the best ways to manage your money during the college years.
Myers knows first-hand what it’s like to blow your budget while in college. Although she’s careful with her money now, she shares that she burned through $3,000 in her first two months of college. “It was just the first time that I had so much cash and I was alone and no one to watch over me,” she shares.
But even if you’re not going through that much money at once, Roberts notes, “I think almost everyone could spend better.”
College is also a time where you are likely surrounded by people who are dealing with tight budget constraints. Myers says it’s okay to be honest about not being able to afford something and to find ways to save money, such as sticking with the school’s meal plan rather than eating out most nights. “It’s like the only time in your life where it’s acceptable to be like, ‘I’m just really broke,’ and just own that,” says Myers. “It’s not as cute when you’re 35 and you’re like, ‘I’m really broke.’”
For students who need or want to earn money, it’s worth looking into options that won’t interfere with school work. For example, some can do work-study, “which is part of financial aid,” says Myers. “And that’s great because you can only work 20 hours tops so the responsibility really isn’t very high.”
However, Myers doesn’t encourage students to take on full-time jobs while in college unless they absolutely need to. “If you can avoid that, because being a student is your ultimate job,” she says, “if you can avoid doing anything that’s going to take away from [college], that’s always preferable.”
But doing some work while in college isn’t only about earning money. Roberts notes there are other advantages. “For the most part, the people you meet who had to work starting at a younger age are just the better people for it,” he says. “They’re more mature. They’ve learned more about themselves. They’ve learned how to function as an adult.”
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Myers agrees that you gain a lot of tools when you work. “You learn how to budget a lot better because you have a certain amount of money coming in every month,” she says. “You’re hyper-efficient because you know you have to go to work between certain hours, in addition to doing your school work and going to class. I personally would advocate everyone get a job whether you need it or not, but… the burden cannot be too high that all of sudden you’re failing school. If you’re not going to class because you’re working, well, then something’s wrong.”
College is also a time when many get their first credit card. But Myers and Roberts have differing opinions on whether that’s a good idea. “Do not get a credit card,” warns Myers.
But Roberts clarifies not to get one in addition to whatever credit card you may already have — in other words, one credit card is plenty. “What I think is dangerous is when you get these reward [credit cards],” he says, such as when you’re shopping at J.Crew or Macy’s and they offer you the store credit card. Even though it can be tempting, “that’s a terrible idea, period,” Myers says. “Because you can’t use it anywhere else.”
Having a credit card is a big responsibility, and without actual cash exchanging hands, it can be easy to overspend. To help prevent that, Myers shares that her mother got her a credit card for college, but then had the credit card company reduce the credit limit. “That can actually be really helpful,” she says, noting that if a credit card company offers an initial credit limit of $20,000 on a card you’re only using for emergencies, you can call them and ask them to lower it to, say, $2,000. “You’ll know that you’ll max out at $2,000. That could be a more manageable number, even if you go into debt,” she says. “Far better that you pay down $2,000 than $20,000.”
There are also apps to help students get better at budgeting, including Mint. But pen and paper also works. Myers recommends jotting down your expenses on one side and your income on the other to see how much money you have left over to spend (and save). “That’s where you find that delta,” she says. “You can find out where your discretionary funds come in.”
It’s also good to check your bank statements online each month and review what you’re spending the most money on, suggests Roberts. You can identify your biggest — as well as your most frivolous — expenses and then, “whatever it is, stop doing it and spend less,” he says.
When it comes to spending money, those little daily purchases can really add up. “Start really thinking about the little things you make purchases on,” Myers says. “It’s very easy for people to say, ‘Okay, I’m not going to buy that new laptop or that new cell phone — that’s several thousand dollars. But people with then go and spend that same amount of money on things that cost a lot less that they actually don’t really need. So you really need to ask those critical questions about, ‘Do I really need this or is this just something that I want?’”
Adds Myers: “If you mind the pennies, the dollars will mind themselves.”
If you do have some money left over post-expenses, Myers and Roberts recommend using it to create a crucial rainy day fund. You can open up an additional savings account, which you don’t touch unless it’s an emergency, and set it up so that any time you get a paycheck it will automatically funnel a designated amount into that separate account where it can grow.
There are also apps that can help you automatically squirrel away money in an amount that works within your budget, such as Digit. Other apps, such as Acorns, can help you invest painlessly by rounding up spare change every time you buy something with a linked credit card. “Every time you make a purchase, whatever the run-off change is — so let’s say you go to Whole Foods and it was $5.92, eight cents in automatically invested into something,” he says. “They’re investing that spare change into funds for you.” Over time, those savings can add up.
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