Many college students and new graduates leave school with more than an education. Besides their student loans, many young people graduate with thousands of dollars in credit-card debt.
In fact, according to Nellie Mae, the nation’s largest student-loan provider, the average undergraduate racks up $2,200 — and the average graduate student $5,800 — in credit-card debt. Runaway credit-card debt is one reason for an unprecedented number of personal bankruptcy filings.
No matter how you look at it, the key is discipline. With credit cards so easy to obtain right now, students may let spending get out of control. Before they know it, they can’t make their monthly payments.
Every single late payment shows up on your credit history. And with more potential employers and insurers credit reports, you really need to be diligent.
Here are some tips for a healthy financial future for students and grads:
• Stop the madness. Credit cards should really be reserved for emergencies only. Things happen, but it’s too easy — and dangerous — to make credit cards a way of life. If you really need something, pay cash.
• Take stock of what you owe — and pay off one debt at a time. Evaluate exactly how much debt you have. Choose the cards with the highest interest rates, and pay those creditors off first.
• If you transfer credit-card balances, read the fine print. Switching higher interest balances to low- or zero-percent interest cards sounds good, but be aware you’ll pay a percentage of the balance transfer, and sometimes an annual fee, which could negate any savings. And some cards raise the interest rate into double digits if you’re late with even one payment.
• Consolidate your student loans. Negotiate the best interest rate you can, and wind up with one payment a month instead of several.
• Spend less. Simple, but true. Do you really need to check sports scores and stock quotes on your cell phone? Think need versus want.
• Come up with a budget. Keep a spending diary for a week. You’ll be surprised at how quickly those cappuccinos add up. Look at your net take-home pay and fixed expenses, and then see what you’re spending on things like clothes and entertainment. Shave a little bit off that spending, and you have the beginning of a savings plan.
• Find out about a 401(k). If you are graduating and heading to a new job, consider participating in your employer’s retirement savings plan. It’s your best bet, delivering an initial tax deduction, tax-deferred growth and a matching employer contribution.
If you can’t pay a bill, don’t pretend it doesn’t matter. Always call the creditor, tell them the situation and try to negotiate a payment plan. This buys you some time and keeps your credit history in the black.
Drew Miller is the executive vice president and chief lending officer of Beneficial Savings Bank.