Debt in college is a serious issue, and it is something that can be stopped if parents and kids take the time to learn more about accruing debt whether it’s through student loans or credit cards.
As mentioned, student loans are one of the main reasons for debt in college. A large majority of students take out loans at some point in their college years. The average student with a four-year degree will graduate with about thousands in student loan debt. Yikes.
College students are also at risk of accruing excessive credit card debt. The broke college kid is usually struggling for cash, and many don’t have the time to work a part-time job. This increases the chances of spending on credit throughout one’s studies.
Below, we will talk about some ways that you can help your children keep on track and avoid both student and credit card debt in college.
Preparing for College to Avoid Student Loans
As mentioned above, student loans are a killer, and they could haunt you for the rest of your life. Whether you borrowed $10,000 or $100,000, you have to pay it back. You are responsible for every single penny plus interest on the loan as well. Many students do not understand the strong implications that come with student loans. And they often think that it will be an easy ride. Borrow money, secure a great job, and pay it back in no time.
It does not always happen that way, and many students find themselves buried in debt once they graduate college. There’s the possibility of an unsuccessful transition to working out of college. If all goes wrong, students can find themselves struggling paycheck to paycheck just to afford the things they need while making student loan payments.
You can help your child by helping them understand what student loans are. And you should help them save early for college to avoid taking on student loans to cover basics such as textbooks and more. Scholarships are a great, free alternative to student loans, and qualifying for the Federal Work-Study program is another great way to limit student debt.
Working to Stay Out of Credit Card Debt in College
It is important for you to teach your children about the proper use of credit cards. They need to know what they are, how they work, and how to pay off debt. Your child could avoid a credit card by spending out
of pocket, but eventually, they’ll need a card in order to establish credit. In short, they’re going to have to learn one day, either the hard way or easy way.
A good place to start is in high school before college by signing them up for a card in your name. While starting out with credit cards, they should begin with a card that has a low spending limit as a baby step. Then you can coach them on how to use a credit card properly. Teach them how to pay off a balance each month, and make sure they know about the repercussions of missing a payment.
Learn to Create a Budget and Stick to It
Lastly, you should work with your child to create a budget and stick to it. You may be rolling your eyes right now, but they are worth it and important. They will help your child keep of their money, debt, and expected expenses. Teach budgeting!
To start, you should sit down with your child and discuss the money brought in per month against monthly expenses. Take a look at their spending habits and try to identify their necessary and extraneous expenses. A good place to start is determining the amount spent on rent, electricity, and water. This should hammer in the lesson of monthly expenses. And it might just spur them on to pick up a part-time job to start saving extra money.
Once you have a budget in place, go over it with them and make sure they are okay with it. If you help them establish a budget, then they are more likely to stick to it. Also, you should be better able to understand their financial situation down the road if you help them out at the start.
There are many ways that your child can stay on track and avoid debt in college. Take some time to sit down and work with your child. It should help them better understand their needs by teaching them about what they can do to save money today and avoid debt tomorrow.
Josh recently got into the personal finance game when he decided to start up Family Faith Finance. His goal is to introduce a unique perspective on personal finance while offering solid, unbiased advice.