What Every Student Should Know About Debt

Student debt can be crippling to your financial success after college -- and, in a very large percentage of cases, for even decades afterward. College students everywhere are encouraged to take advantage of student loans that promise you won't have to pay until you're done with college, and they generally also receive encouragement to focus on their studies and not work a paid job while they're in school. This combination can lead to a debt load that will overshadow most of your adult life, causing financial stress that often far outweighs the benefit you may have received by going to college. This isn't to say that student debt is bad in and of itself, but it must be carefully managed to ensure that it doesn't harm your future.

Create a budget and stick to it

Possibly the most damaging part of any financial situation is the complete lack of a budget. Especially when you're in college, peer pressure for needless spending is high, and the chunk of money you receive when a student loan pays out can seem like a great opportunity to do things that you wouldn't normally be able to afford. Bear in mind that this is not free money, and you will have to pay it all back one day -- so use it only for the necessities.

Create a complete and realistic budget that includes all of your expenses and specifically details how much frivolous spending you'll allow yourself. If your budget indicates more money than you have, then you need to make conscious and specific decisions about the changes you'll make to bring the amount down (i.e. eat out one less time per month, or ride your bike around town or campus rather than drive). It may be prudent to set up an "envelope system" for yourself if you're not used to living on a budget. Label envelopes with names of expenses, such as 'books' or 'food.' If the envelope is empty, then you don't have money for that purpose unless you take it out of somewhere else. Remember, just because you have cash in the bank doesn't mean that you have money to spend.

Carefully analyze your student loan debt

While it may be tempting to figure out all of the money you need for college and then take out a loan for that amount, there are several factors that come into play. First, what is the expected increase in pay you'll receive after you have finished your intended degree? How long will you have to work at that rate to offset the cost of college and all of the attendant finance charges? If possible, assess the amount you'll need every semester, and borrow only that amount. Any money you can save or get in scholarships and grants is money that you need never take out in a student loan.

Job considerations

Finally, the key thing you need to know about debt is that it's much easier to prevent than to repay. The most effective way to prevent unmanageable debt in the future is to supplement your financing with cash flow from employment. This could be a part-time job, work study or even odd jobs that will bring in a little bit of extra money. Every little bit that you can pay now is money that you won't have to pay back with interest later.

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