Teaching college-bound students to avoid credit card debt
According to the survey conducted by credit bureau TransUnion, the biggest challenge university students have while in school is keeping up with their bills. More than 50 percent of participants said they turned to credit to pay for everyday expenses such as food, books, tuition and entertainment. As many as one in four said they accumulated $1,000 or more of credit card debt as a direct result of these expenses.
Parents need to take a proactive role in teaching their children about the importance of guarding their credit scores and how to avoid the pitfalls they may encounter while away at school.
Here are some tips directly from TransUnion.ca that can help educate students on the importance of money management:
Help set up a spending budget. This can be a great dose of reality for students to see how expensive it can be living on their own, without mom and dad to borrow from when funds run out. Parents should sit down with their children and figure out the amounts they'll need to set aside each month for the basic necessities such as food, clothing, school supplies, laundry and transportation. Entertainment is important, too, but they'll quickly realize that it is an "extra" that they'll need to budget for, or find less costly things to do.
Be wary of "free." There are credit cards that draw customers in with free rewards or gifts, temporary low interest rates and other perks. Some credit card companies target students with these types of cards because they know they need to start building credit. Students should understand how to read the fine print and to avoid anything that sounds too good to be true.
Prepare for the unexpected. Representatives from TransUnion.ca advise that students create a financial emergency fund to cover unexpected expenses. Parents should express the importance of socking some money away, at least two or three months' worth of expenses and bill payments. That way, students will have the peace of mind of knowing they'll be able to take care of themselves if they get into a pinch.
Understand what student loans are. A common problem among many students is forgetting that student loans are just that: loans. It isn't free money that can be spent freely. The government loans money out to finance education because most students can't do it entirely on their own. When people misuse this money or don't pay it back, it affects future students' chances of getting the money they need. Parents should sit down with their children and explain exactly what the money is for, where it should be going and that it must be paid back.
Working can help reduce debt load. Working while going to school can be difficult, especially if one's school work load is large. But working during the break times can be a great way to offset the amount needed for loans, as well as a way to make some spending money that doesn't have to come from loans or credit.
Take care of a financial problem right away. We all know it can be difficult to find a job while in school, or even right after graduation. If students have difficulty finding a job, or they get into a situation where they may not be able to keep up with their payments, they need to contact creditors immediately. Most places will give a few months grace, especially when the person has been faithful with payments in the past. Ignoring bills doesn't make them go away, they just get bigger.
Finally, if students find their financial burden from credit cards and student loans too great after graduation, parents can suggest they get a consolidation loan. This can save a huge amount of interest and help pay debt off a lot faster.
Unfortunately, not all students are lucky enough to have their education completely paid for -- some debt will be accrued. But with the right information from parents, and sticking to a carefully planned budget, students can arm themselves against accumulating uncontrollable debt while at school.
Written by Lily Wolf.
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