Managing Debt in College and Beyond
ByASB May 10, 2021 | 5 min read Personal
The cost of higher education continues to be on the rise, with student loan debt becoming increasingly common among younger generations. Learning how to manage your debt and establishing good money habits as soon as possible can help to ensure you have a financially healthy and stable future that allows you to pay back your debts.
Read on to learn more about managing debt in college, and beyond.
Good Debt vs. Bad Debt
A lot of students start college believing that all debt is a bad thing. This common misconception sometimes holds people back financially. In reality, some types of debt are considered “good debt” while others are considered “bad debt.”
Good debt refers to money that you can borrow to invest in your future. Common examples include student loans and mortgages. Your student loan(s) may be costly, but you can view them as an investment towards your higher education. By using a loan to pay for college, you’re able to get a degree, which hopefully will lead you to a career that allows you to make more money. Similarly, a home loan like a mortgage can help you to afford a house – a real estate investment that will grow in value over time, vs. losing money while renting.
Bad debt, on the other hand, usually refers to money that is borrowed to buy something you can’t afford, or to cover expenses that aren’t considered an investment. Examples include unnecessary credit card debt, or a payday loan to pay for a new outfit. Generally, if you can’t afford something and don’t need it, taking out a loan to purchase it will result in bad debt.
Managing Debt in College
When it comes to debt in college, student loans is probably the first type of debt that comes to mind. However, many student loan programs, such as federal student loans, don’t require you to start repaying your debt right away. In fact, depending on the loan you have, you may not need to pay off your loan until you graduate, leave school, or switch to part-time enrollment. This gives you some time to focus on your studies and find a good job after graduation.
If you do have extra money available, you can start paying off your student loan debt while you’re still in school. Getting a head start on repaying your loans can make room for more money in your budget to move out on your own or plan a big life event.
Credit Card Debt During College
Another common form of debt while in college is credit card debt. You might be thinking of applying for a credit card while in school to start building your credit and help you pay for emergencies and regular expenses. You’ll want to be sure you’re responsible enough to handle a credit card before you apply. Can you make your payments each month, by your credit card’s deadline? Do you have a rainy day or emergency savings, in case you spend more on your credit card than expected and need to dip into extra funds?
A good way to get started building credit is to look for a secured credit card. Secured cards give students a better chance of approval because they use a security deposit. The credit card issuer can use the security deposit to cover purchases on the card if you suddenly can’t pay your bill. Pay your bill on time each month and your deposit should be automatically refunded to you.
Once you have a credit card, you can reduce your risk of falling into credit card debt by following these tips:
Use your card like a debit card. This means you only buy things on the card if you already have the money to cover the cost in your bank account.
Only put regular expenses, like gas or groceries, on the card. By only making normal purchases with your credit card, you’re less likely to overspend.
Managing Debt After Graduation
Post-graduation is a great time to consider paying off any student loans you might have. Contact your student loan lender to see if you can create a repayment plan that includes a set monthly payment and timeline to pay off the loans.
Student loan repayment could take decades, depending on how much you borrowed for school and your income. In the time it takes to repay student loans, you might want to borrow money for other things as well. For instance, you could be looking to upgrade your vehicle with a new car or want to buy your first house.
Making smart choices with your money can help you with managing debt in college and after graduation.
Here are a few tips to help you with managing your debt:
Create a budget for your monthly payments.
Set up automatic payments so your bills are paid on time each month.
Use extra money, such as a bonus at work, to help pay down high-interest debt.
Build an emergency fund to cover living expenses if you lose your job or have an unexpected expense.