“Debt is normal. Be weird,” says financial guru, Dave Ramsey. Here in Austin, we have no shortage of “weird”, but that doesn't mean you have to stop shaving, get tattoos, or ride around town on a bicycle wearing a thong. (Not that there is anything wrong with that!)
High school graduation marks the end of childhood, and for many, the beginning of the great adventure known as college. This year’s high school seniors will probably share a “normal” attribute with last year’s college graduates, you will likely be the most indebted class in history when you graduate in 2019 (or 20 or 21).[i]
No one said a great education is cheap, but there are a few steps that you can take to “keep it weird” and maybe minimize the amount that you owe upon graduation.
1. Open the right LOCAL bank/credit union account. For many college freshman, one of the first real steps to adulthood is opening a checking account. Checks, bill payment services, debit, and ATM cards all give you easy access to your securely held account. Carefully research the options available to you by asking the following questions:
Do they offer any low cost options for students?
Where are their ATMs? (Important because they probably offer free withdrawals.)
How much do they charge for using other banks’ ATMs? (Paying $2 to take out $20 is like paying the bank 10% to keep your money.)
How much do they charge each month?
How much are checks?
Are there a minimum number of checks or debit card transactions?
How much do they charge for overdrafts? (These can cost $30+ every time!)
How much do they charge for overdraft protection? (Think of it as insurance to be used rarely, if ever.)
Do they pay any interest on balances? (This probably won’t be much of a factor today, but could be a differentiator down the road.)
2. Get ONE good credit card and learn how to use it. This may be scary for your parents, but getting a good credit card and learning to use it prudently can not only teach you a valuable life skill but it also starts building your credit. Several banks offer cards targeted to students. One example is the Journey® Student Rewards from Capital One®. It has no annual fee, 1% cash back on all purchases, and .25% back for timely payments each month.
Once you have a card, there is one rule. Pay off the entire balance EVERY month. The card above charges 19.8% interest on balances that are not paid off. Put another way, if you paid the minimum payment of $10 per month, it would take you 11 months to pay off a $100 balance!
3. Track your spending. The best way to avoid overdrafts or ending the month with more days than dollars is to keep your spending within budget. There are many free services or applications that help you track your spending, balances, and even pay bills. Tracking your actual spending and budgeting accordingly may be more effective than sticking with a budget that you created from scratch. Options include Checkbook, Mint.com, Spending Tracker, and Yodlee Money Center
4. Watch your food costs. If you have a meal plan, use it! That Starbucks, Chipotle, or even McDonalds can easily add $5-$10 per day to your expenses. Treat yourself occasionally, but take advantage of the food you (or your parents) have already paid for. You should also buy snacks and beverages at the grocery store to keep in your room or backpack to avoid paying a premium at the vending machine or convenience store.
5. Take full advantage of student discounts – When you decide to spend money, your College ID can be a coupon for everything from discounted movies to pizza. The key is to ask, “Do you offer a discount for college students?” Don’t be shy!
One last piece of advice – Don’t park where you aren't supposed to. The fines are not only expensive, the consequences of not paying are extreme. Issuing parking tickets is a profit center for the university, and they take it seriously.
They may not let you enroll the following semester, graduate, or request a transcript if you are past due on your fines. They pretty much own you. The best ways to avoid parking tickets? Get out of bed a little earlier, ride your bike, or (gasp) walk to class.
For most folks, college is one of the most impactful (and fun!) periods of their life. Unfortunately, that impact isn't always positive, especially if you have to spend the next 20 years of your life paying off the debts you incur. A little prudence, discipline, and weirdness can go a long way.
Congratulations to the Class of 2015!