With all the worries and work involved in attending college, it’s understandable that students might lose track of their financial situation. But it only takes a few mistakes before they earn an “F” in money management.
With that in mind, we reached out to Beverly Harzog, a nationally recognized consumer finance analyst and credit card expert for U.S. News & World Report who is also the bestselling and award-winning author of five personal finance books. The following are Harzog’s top tips from our interview that will keep college students on the dean’s list, financially speaking!
WHN: What are three things you wish college students understood about credit cards and credit card debt?
Harzog : The college years are a great time for building credit, but only if students understand a few rules.
- It’s important to have a budget in place before you get a credit card. There are many free apps available to help you budget and track expenses. If you don’t track expenses, you’re likely to get into debt. A high balance can also lower your FICO score.
- Payment history is 35% of your FICO credit score. Always pay your bills on time.
- Pay your credit card bill in full and by the due date. If you carry a balance, you’ll pay compound interest. This increases your debt pretty quickly.
WHN: What are some strategies that college students can use to avoid falling into the credit trap?
Harzog: The importance of tracking expenses can’t be overstated. If you don’t know how much you’ve spent with your credit card, you won’t know when to stop using it. This gets a lot of people—both young and old—into a debt hole. To pay your bill in full, you need to have a limit on your credit card usage each month.
This is a situation where using technology makes your life easy. Find an app for your phone or use an online money management tool and you’ll see how easy it is to organize your finances and stay out of trouble.
WHN: What are the indicators that they are getting in over their heads in term of credit card debt?
Harzog: Once you carry a balance for the first time, this is a red flag. If it’s due to an emergency and it’s one-time thing, that’s understandable. But if you carry a balance for more than two months, stop using your credit card until you catch up. And don’t use your credit card again until you have the tools in place to avoid revolving a balance.
WHN: What should they do once they realize they are in financial trouble? Where can they turn for assistance?
Harzog: College students have a lot of financial pressure. Many have student loans and the last thing they need is credit card debt. Most colleges have help for students who are getting into trouble with their money. Don’t wait until you’re in deep credit card debt. Ask for help and you’ll get back on the right track. If your school doesn’t offer help for your situation, check out the National Foundation for Credit Counseling.
WHN: What can parents do to better prepare their teens for making financial decisions once they are in college?
Harzog: The best time to educate kids about money starts in elementary school. But even starting financial literacy lessons during high school works, too. It’s essential that kids understand money, and especially credit, before you drop them off at the dorm for their freshman year. When they do get a credit card, keep in touch and encourage questions. Let them know you are there to help. And if you’ve been in debt, share that story. They’ll know that you understand mistakes and they’ll be more likely to talk to you about money issues.
For More Information
For more tips about handling money and making financial decisions while in college, read these posts:
- 6 College Money Tips
- Finding and Financing Higher Education
- 10 Tips for Surviving the First Month of College
Photo Credit: Pablo