Hey buddy! I hope you are enjoying your college days. Do you know what is the most exciting part of growing up?
The answer is, you can be financially independent! But you know what? It can be hard to celebrate your graduation if you have a huge debt to pay off!
And if you are up to the neck in debt right from the start of your career, then it’s gonna be very tough for you to achieve financial independence!
So, how will you manage your debts? It can be a student loan debt, credit card debt, etc. But you need to be efficient in managing your debts and be financially stable!
Let’s find it out!
Being a freshman, most likely, you have limited experience with credit cards and other forms of credit. Eventually, you don’t have any credit score. And if you are using any add on credit card of your parents, then you might be having a very thin credit history.
No doubt, a good credit score is required in your financial life. Your creditors, employers, landlords, insurers, etc. can ask for your credit score to decide whether or not to approve your applications! And most importantly, at what cost!
That’s why you need to use your credit card wisely. Else, you might be debt trapped right from the beginning of your career.
Pick the right credit card
Are you taking out a credit card for that free t-shirt or coffee mug?
If yes, you might be taking the wrong step! Don’t get swept away by looking at these lucrative freebies.
Instead, read the terms and conditions carefully. Compare its interest charges and other fees along with other credit card offers you have received. Usually, student credit cards have no annual fee, a low-interest rate, and a low credit limit.
Refrain from making minimum payments
Making the minimum payment on your credit card means the lowest amount you can pay to avoid penalties. Usually, a minimum payment is calculated as a certain percentage of your outstanding balance amount plus fees, if any.
In short, the higher your outstanding balance, the more will be your minimum payment amount! This can entice you as you can get temporary relief from paying off the entire payable amount.
But in the long run, it’s going to burn a hole in your pocket! Why so? You have to shell out more as your outstanding balance amount is calculated daily. And I hope you are well aware of the high-interest rates of the credit cards. The minimum payment that makes it “easier” to pay off your outstanding balance, actually makes it more expensive!
So, even if you are having financial constraints, try to pay off at least more than the minimum payment amount.
Only charge what you can pay
You might be enticed to buy a product with your credit card which would have been impossible to buy otherwise!
And that’s the mistake you might be doing. Buying an expensive product means your outstanding balance amount is gonna be high! And it’s going to be tough for you to pay it off.
So, charge your credit card for small amounts. Then, pay off your outstanding balance amount in full and always on time! And you know what?
The best way to manage credit cards is by paying off your outstanding balance amount within the grace period! Then you won’t have to pay any hefty interest on your balance amount!
By the way, are you planning to take out a student loan? If you are taking out a private student loan, you should be aware of some important facts about it!
According to a 2017 study by New America, the average interest of student loans in our country is 5.8%! But the interest rate varies with your co signer’s credit score and other factors.
After graduating from your college, you might find a job with a modest income. But you might feel that your student debt is breathing down your neck while making those monthly payments!
Because, if you don’t make timely payments, your loan becomes delinquent. And after a grace period of 15 days, your creditors will levy high late fees on you!
So, do you have any alternate options for private student loans?
Yes, you have! Let’s see!
Apply for FAFSA (Free Application for Federal Student Aid)
You need to file applications for every school year, reflecting your current income and financial status. The basic eligibility criteria for FAFSA are:
- You must be a U.S. citizen or an eligible noncitizen and have a valid Social Security Number.
- You must have a high school diploma or a GED (General Educational Development) certificate.
- You must be enrolled or accepted as a student in an eligible degree or certificate program.
FAFSA offers student loans at fixed interest rates set by the government! The U.S. Department of Education sets the interest rates annually on freshly issued federal direct loans.
For the 2019-20 school year, the interest rate for federal direct undergraduate student loans is 4.53%. The interest rates decreased from the last school year and apply to loans disbursed between July 1, 2019, and July 1, 2020.
So, what are you waiting for? Apply for federal student loans at the earliest!
Or, have you already taken out private student loans?
Look for a suitable part-time or full-time job
You can reap ample benefits if you start working during your college life. But you might feel that working part-time will distract you from your studies. So, you’ll have to put some extra effort to get good grades and work part-time simultaneously.
Doing a part-time job and following a realistic budget is the best way to manage student loans! And if you have taken out a student loan, you can start paying it off right from your college days. Thus preventing you from the huge incurred interest of your student loan(s).
When you are working, you have to learn how to deal with different people at work. Moreover, you have to manage your classes and work efficiently. As a result, it helps you to improve yourself in time management skills, too.
You will find a few companies which offer full-time benefits to their employees if they work 25 hours a week!
If you are an employee of any such company, you can start contributing to your 401(k). Thereby, you will be able to contribute to your retirement fund even before you graduate! Moreover, you will qualify for your health insurance and a tuition assistance program while attending college.
And if you have enrolled for a distance education course, you can apply for a full-time job while studying.
The bottom line would be you have to learn how to manage your student loan debt and credit cards. Besides, you can implement these ways to manage your debts right from the beginning of your career. Trust me, it will help you in the long run!