Off to college for the first time? Tips to avoid the debt traps awaiting you

Congratulations! You’re officially stepping into the journey toward financial independence. Here are a few tips to stay on track with your money, so you can enjoy your time in college while also setting yourself up for future financial success.

Campus credit card lurchers are everywhere …

… but you only need one credit card to start building a strong credit score.

Having a student credit card is essential to building a credit score and managing living expenses in our digital world — groceries, utilities, Spotify, etc.

Students get into trouble with credit cards in three ways. The first: having too many of them, which leads to overspending temptations. The second is using up too much of the credit that’s available, a.k.a. “maxing out.” And the third is not paying them off in full and on time, resulting in high interest charges of between 19 and 22 per cent. And, of course, not paying it back at all will destroy your credit score.

All of this is avoidable. Sign up for one card and keep the limit manageable, say $1,000. Try to limit purchases on that card to essentials only. Every 30 days, pay your credit card on time and in-full. Check your statement for the exact date it’s due.

I recommend keeping tabs on your credit score with an app like CreditKarma, or through your online banking or on a site like Borrowell. A credit score over 650 is considered “good,” and that takes time to build.

Make a budget using your favourite app or spreadsheet

The most important financial skill every student needs to learn is budgeting. A budget is a plan for your money and when you follow one, it helps you avoid unnecessary debt. I like the budget templates from Mint and You Need a Budget (YNAB), and Google sheets makes it super easy to build your own.

For income, this is where you include a part-time job, money from parents, or student loans or lines of credit.

For expenses, include your living expenses; cellphone bill, transit pass, groceries and other items like social spending (try not to overdo it here on parties, travel and meals).

Your template will subtract your expenses from your income, to show you if you have any money left over. If you do, save it or enjoy it! If it is negative, that means you’re spending more than you are bringing in and you’ll need to cut back.

Pair your budget with regular tracking. Almost every financial institution in Canada has a notification system so you’ll receive a notification of all transactions going through your bank account. Notifications help bring awareness to your spending, and you can glean insights about how well you’re following your budget.

It’s easy to catch a deal when you’re looking for one

Coupon apps aggregate the best savings so that you don’t have to flip through paper flyers. Most of your favourite vendors have email lists you can join and be notified of online discounts when they happen. You can have fun making social outings a money-saving game, like “Where’s the best happy hour or two-for-one special?” Certain credit cards and loyalty programs offer rewards that can be used for purchases that matter to you, so sign up. Buy a used text book rather than a new one. And ensure all of your banking fees, subscriptions and purchases are taking advantage of student discounts.

Work when you can, and learn to save

Students who work during post-secondary are more likely to be hired after graduation because they have work experience. They may also accumulate less student debt, which is a huge bonus. Some research points to working students as having higher grades, too.

Whatever the job you get during the year or during the summer (or both), learn the habit of saving a little bit each payday. These savings can go toward tuition, travel, a new laptop or whatever else you need. Both hard work and saving are habits that will pay off in spades when you graduate.

My last tip is to make peace with the idea that student debt is a good debt. That means it’s used to build up an asset, and that asset is you and your future income earning potential. Don’t let your student loans get you down; just focus on your studies and steering clear of the bad debt — purchases you can’t afford.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.