A survey by Walletpath revealed that even though 65% of college grads wished they knew more about personal finance, they seemed to be doing pretty well for themselves. However, things are a bit different when it comes to college freshmen across the United States. As per a 2013 Higher One study, a good percentage of them were found to be not as financially responsible as they were expected to be.
Let’s take you through the top 5 money mistakes that freshmen make during their student years.
1. Incurring credit card debt
While a large number of students take student loans and set themselves up for years and years of repayments, some go a step further and also add credit card debt into the mix. Although it’s gotten pretty harder for credit card issuers to pursue students on college campuses, they continue to use all possible means for marketing their offerings to these freshmen, especially during the initial few months of their college.
On the one hand, responsible credit card usage during one’s college years can help a student significantly in building a healthy credit score. Using one of the best first credit cards can help you build your credit so that you can eventually upgrade to one of the more popular flexible travel credit cards, such as the Chase Sapphire Preferred vs Capital One Venture credit cards to help meet your travel goals.
On the other, things can go quickly out of control if the same card is used for splurging on unwanted things, or for filling up budgetary gaps.
Furthermore, as students are normally issued starter credit cards, these have higher interest rates than what’s charged to people with healthy credit scores. So, any irresponsible usage can bury them in huge piles of debt in no time; not to forget the damage it can do to their credit scores in the long run.
Use a credit card during your college years only if you don’t treat it as free money. Keep your credit utilization low, ideally below 10%. Pay off your balances in full every month. Last but not least, pay your credit card bills on time.
2. Resorting to private loans
The freshmen are generally recommended to first max out their federal loans, for which they can become eligible by filling out FAFSA or Free Application for Federal Student Aid, and only then apply for any private student loans. The reason for this is pretty simple – the interest rates charged on federal loans aren’t determined based on credit checks, hence, you are offered the same rate that’s offered to everyone else.
In addition, federal loans come with solid borrower protections such as deferment & forbearance options and income-based repayment plans, which can come in pretty handy if you face any troubles in making monthly payments in the future. As private student loans are incomparable to such federal loans, especially when it comes to such perks, they should only be used as a last resort.
3. Working minimum wage jobs
Plenty of students, especially the international ones, have to find their way through school education by taking up minimum wage jobs. They get so engrossed in such occupations that they forget about other ways they can enjoy a flexible schedule and also make more money.
For instance, any student who has done fairly well in his/her high school can tutor local high school students, and get paid a handsome fee ranging from $ 15 – $ 30 per hour for such services. Students must make the most of their talents and use them effectively for earning a living. For example, anyone good at music can play weekend gigs at local clubs, or anyone good at taking pictures can take up wedding photography assignments.
Students can even leverage their college education skills and use them to earn handsomely during their freshman years. For instance, anyone enrolled in for computer education can create websites, do graphic design work or run social media campaigns for small businesses in his/her free time.
It’s all about thinking out of the box and making every hour count!
4. Not seeking scholarships anymore
Another commonly known mistake that many freshmen make during their college years is that they stop seeking scholarships. Although there are a good number of scholarships available to high school seniors, there are many, in fact running into hundreds of millions of dollars’ worth that can be availed by college students too.
In order to learn more about such scholarships, the college students must approach their financial aid officers and let them know about their keenness for scholarship applications. The student will then be acquainted with the application process for institutional scholarships offered by the college. What more, he/she can contact them even if it’s a last-minute case.
Apart from these, freshmen must keep their search on for scholarships on the Internet too. Bagging even a few thousand dollars’ scholarship per year can make a major difference to their yearly budgets.
5. Not giving enough importance to budget
Going to college without having a well-thought-of budget in place can be the perfect recipe for disaster for any freshman. It’s not uncommon to see college students running out of money much before the completion of the college year, or in some cases even before the completion of the first term. This is where a budget can help.
But having a budget in place doesn’t automatically guarantee a financially comfortable ride. As high-school students’ expenses are usually paid for by their parents or guardians, they don’t actually understand the cost of every component in their education. As a result, any budget created by them may or may not take everything into consideration. Hence, even if a student has based his/her budget on the estimated cost of attending a college, the worked-out figure may be lower than the actual costs incurred by his/her parent/guardian.
For a student to create a more realistic budget, he/she must create a budget before the start of the college, and then revise it at a later stage, at least a month after starting attending the college. He/she might need to find an additional income stream, learn to live frugally or may need to cut back significantly on certain expenses if the actual expenses turn out to be higher than the budgeted monthly amount. Furthermore, such check must be made on a continuous basis every month.