When you were packing to leave for college, how many times did financial management cross your mind? Let me guess; probably not many. More than likely, you were too busy listening to everyone telling you to be safe, stay away from trouble and to study hard.
But what about the money talk? This topic is typically put on the back burner, although, according to Credit.com, 7.2 percent of college students drop out as a result of debt or financial pressures.
And it doesn’t help that a lot of students are financially illiterate, despite strong public support for teaching personal finance in school. “Yet just four states require a stand-alone personal finance course in high school and just 13 require money management instruction as part of some other class,” Time says.
Are you being wise with your finances? Here are signs that you may be doing otherwise:
1. You’re enticed to sign up for credit cards
While the Credit CARD Act placed restrictions on access to credit cards by those younger than 21 and also put some limits on credit card marketing on campus, students are still being enticed to sign up for credit cards. Says LearnVest:
Despite new regulations, predatory debit and credit card marketing to college students is still a major issue. Almost 900 colleges have lucrative debit and credit card partnerships with financial firms, according to new findings by the U.S. Public Interest Research Group, enabling banks to target and profit from over 9 million students across the nation.
I fell for the trap of signing up for a credit card in exchange for a freebie in my freshman year. A local sub shop, which was fairly costly but popular among the student body, partnered with a major credit card issuer to offer a free combo in exchange for signing up for a brand-spanking-new shiny piece of plastic.
2. You’re spending like there’s no tomorrow
With college comes newfound freedom and, for many, poor spending habits. It is all too common for students to exhaust all the funds allocated to them for the semester way before the semester ends because they fail to budget properly. Others have a reckless disregard for managing their money and spend like money grows on trees.
Regardless of which category you fall into, you should instead seek out bargains on things you need. For instance, many campuses offer events that serve free food. Also, inquire about student discounts when you are making a purchase. Find ways to save on textbooks.
3. You’re falling victim to the minimum-payment trap
If you think that paying the minimum on a credit card with a high balance will suffice, you’re sadly mistaken. You’re going to end up spending way more than the items’ original purchase price because of interest, and the bill could take years to pay off. Your credit card statement will tell you how long it will take if you pay only the minimum due.
4. You’re taking out emergency student loans
Does the purchase you are looking to make really constitute an emergency?
An acquaintance of mine once took out an emergency loan to make a small down payment on a car. The only problem was that the car not a necessity: she already had a car that was only a few years old. She just wanted to ride in style. It ultimately ended up costing her way more than she’d bargained for when she graduated with a number of “emergency loans” under her belt and struggled to find decent employment for almost a year.
5. You’re borrowing from private financial institutions
Many private lenders offer student loans that are unsubsidized, which means they accrue interest from Day One. Unlike federal loans, they may also require that you make payments while you are enrolled, and your interest rate may be variable and will depend on your credit score.
Forbearance and deferment are usually not an option for private student loans. If this is a last resort, be sure to proceed with caution. Check out this comprehensive comparison chart from the U.S. Department of Education.
6. You’re enrolling for an extended period of time
As tough as the real world can be, we all must face it some day. But many students beg to differ and use college as a buffer. The problem with this approach is that the federal government will offer you only so much aid before it cuts you off, and you will have to turn to private lenders for funding.
Even if you’re in graduate school to get ahead or because you can’t find a job, always perform a cost-benefit analysis and plan ahead, because things won’t just magically work themselves out.
7. You’re being reckless with confidential information
You may trust your roommate or study buddy, but what about all the other strange folks roaming around college campuses? The bottom line is that you should not be so quick to trust anyone with confidential information about your finances because of the risk of identity theft. See “10 Reasons You’re a Target for Identity Theft.”
8. You’re signing up for “free” banking with hidden fees
A lot of the banking products out there designed for college students are a nightmare waiting to happen. Read the fine print before you sign up. Banks have dozens of fees that may not be apparent to you until you have to pay them.
9. You’re exercising the cash advance option on your credit card
It may not seem like such a bad idea to use a cash advance from your credit card if things get a little tight. But cash advances come with a standard fee of as much as $35 or 3 percent to 5 percent of the total amount. Also, they often have higher interest rates than your card, and the interest starts accruing immediately, leaving you without a grace period to pay off the balance.
Bottom line: Don’t let your newfound freedom overshadow your financial responsibility. Otherwise, your temporary pleasure will soon be converted to long-term pain in the form of exorbitant debt balances, the possibility of poor credit scores and the stress that will accompany both.
What steps have you taken to adopt responsible financial habits? Let us know in the comments below or on our Facebook page.