Student Loan Dodgers

You’ve heard stories about young college students who have amassed thousands of dollars in credit card debts, and you don’t want to join their ranks! How can you avoid falling victim to the credit card trap while you’re in college?

The more you know about money, credit cards and debt, the better off you’ll be. First, look at what you’re spending. Research conducted at MIT shows that study subjects paid as much as 100 percent more for purchases made with credit cards than they did for purchases made with cash. The research shows that we look at credit card purchases differently than we do those made with cash. Since the payment for the purchase is delayed, we often give ourselves permission to spend more, knowing that we will not be impacted immediately by credit purchases. To get a handle on where your money is going, try going on an all-cash diet for a while.

This approach works, even for those who pay off their balances in full every month. The over-spending isn’t tied to the extra interest charges, but rather to the lag time between the purchase and the payment. By paying for everything with cash, you’ll catch a lot of passive overspending that you may otherwise not even notice.

If you don’t know how to handle cash, learn! Start out small, by managing a checking account. If you are not confident in your ability to do that, ask your bank or credit union for some assistance. They may have consumer education programs that will cover the basics, as well as more in-depth information about money management and long-term savings and investment strategies that you can put into action. If not, check the local community college to see if it offers a course or two on personal finance. You may also be able to find on-line courses that will help you understand the importance of managing money correctly, saving and investing.

Don’t make the mistake of thinking that you need to have a lot of money to invest. Small, regular investments will often take you farther than larger, irregular investments. Many mutual funds, brokerages and banks have regular investment programs that will accept small regular deposits. Having a savings cushion is essential to financial security. Your savings account will help you cover unexpected expenses, but many people try to get by without one, reasoning that they can’t “afford” to save. In reality, few people can afford not to set aside some cash for a rainy day!

Learn as much as you can about finances, and you’ll be measurably better off. Managing your money is often more about managing your spending than about managing your funds. Recognize those spending habits that cause you to shell out extra cash and eliminate them whenever possible. You’ll be doing yourself a great favor and saving yourself a bundle in the process.