Friday | February 10, 2012
How to Avoid Common College Debt Traps
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By
Eri Kaneko
11 March 2004
College is a time of many firsts for students: the first time you are living without your parents and the first time you decide on your own schedule. It is also the first time you have to make financial decisions for yourself. It can be frightening, and without proper planning, you could easily find yourself burdened with debts beyond just your student loans.
The most dangerous pitfall for many college students is the overuse of credit cards. Many banks do their best to entice new card holders with low or zero-interest cards. Gary Schatsky, a certified financial planner in New York, says that certain companies specifically prey on the vulnerability of students with no income.
“Just because the kids are approved, it doesn’t mean the companies are confident that they can pay their bills,” he said. “They are signing on for large debts with low initial interest rates that can skyrocket ultimately.”
Kara Marmion, 20, a junior at Pennsylvania State College, understands the dangers of overusing a credit card. “I don’t have a credit card,” she said. “A lot of my friends have them, but use them sparingly, and they’re usually given to them by their parents to use for necessary stuff, like books.”
Marmion, a public relations and advertising major, says that her biggest expenses are eating out several times a week, buying clothes and her sorority dues, which she pays every semester. “I use a check card and stuff adds up,” she said. “I don’t even realize that until I check my balances.”
Schatsky says that sticking to a budget in college may be difficult, but he suggests making a list of your needs versus your wants.
“If anything, it can get you thinking about your purchasing decisions. It’s painful, but definitely a positive experience,” he said.
He says that it is almost impossible to live within your means as a college student, and he acknowledges that spending sparingly by eating pizza for breakfast, lunch and dinner for four or more years is not fun.
“You should give yourself the occasional luxury, but still try to live as frugally as possible,” he said.
Shelly R. Plumb, an educational consultant based in Pennsylvania who runs a company called A+ College Financial Planning, agrees that keeping to a budget can be challenging. But she says that students should strive to set out at least a loose budget based on the money they have, and alter it based on their needs.
“You can revamp your budget every semester if your expenses are higher than you anticipated,” she said. “Look at how much money you have. Then, take less than what you want with you to school, and base your budget off of that.”
Plumb also suggests that students ask their parents, who have already had significant experience in planning out finances, for help in mapping out a budget.
“College kids are going to have to learn it the hard way if they don’t learn it from their parents,” she said.
© 2008, Young Money Media, LLC. All rights reserved.
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