Common Financial Mistakes College Students Make Early On

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For many people, their first taste of managing their own money comes when they begin college, especially if they live on campus away from family. College students will begin to make many of their own decisions when it comes to how they’ll earn and spend their money.

And while many students are likely still figuring out how to make their personal finances personal, those who never received formal financial education may be apt to make a few near-sighted choices with dismal consequences in the long-run.

Below, Select dives into a few common financial mistakes college students tend to make along with some suggestions on how to avoid them.

Misusing student loans

The average borrower between the ages of 25 and 34 has $33,817.56 in student loan debt. This number is just under the average student loan balance for borrowers of all ages, which is $39,351. Most student loans are federal student loans but there are also private loan options to help students bridge the gap between what is offered to them from the government and what is needed to cover the remaining costs of college.

However, sometimes students qualify for more funding than they may actually need for the school year. In fact, a 2013 feature from U.S. News discussed the experiences of young adults who received more money than they needed and used school loans to fund lavish lifestyles while they attended college. In short, they ended up with debt balances that seemed impossible to repay.

It can be tempting to use the excess money to make non-education related purchases, but students should avoid seeing extra loan money as a source of income. The money will need to be repaid and every dollar you borrow accrues interest.

Over time, the interest charges add up so you’ll actually end up owing significantly more than you initially borrowed. Be sure to only accept the loan amount you need to cover essential education-related costs, like tuition, dorm expenses and textbooks.

Not paying attention to the repayment terms on their student loans

Racking up credit card debt

According to a recent TransUnion report, Americans on average have less credit card debt in 2021 than they did in 2020. However, Gen Z’ers (many of whom are college-aged) were the only generation to see a slight uptick in their credit card debt balances in 2021. Their average balance rose slightly, from $1,522 to $1,616.

Credit cards can be a valuable financial tool to help you improve your credit score or to allow for flexible payment options. Plus, many cards offer valuable rewards, like the Chase Sapphire Preferred® Card, which currently offers 100,000 bonus points if you spend $4,000 within the first three months of opening (equivalent to $1,250 toward travel when you redeem through Chase Ultimate Rewards).

However, many people — whether they’re adults or students — make credit card purchases without a plan for how they will pay off their balances. In fact, a 2019 survey found that only 51% of students plan to pay off their credit card balances in full.

Chase Sapphire Preferred® Card

  • Rewards

    $50 annual Ultimate Rewards Hotel Credit, 5X points on travel purchased through Chase Ultimate Rewards®, 3X points on dining, 2X points on all other travel purchases, 5X points on Lyft rides through March 2022, and 1X points on all other purchases

  • Welcome bonus

    Earn 100,000 bonus points after spending $4,000 on purchases in the first 3 months from account opening

  • Annual fee

  • Intro APR

  • Regular APR

    15.99% to 22.99% variable on purchases and balance transfers

  • Balance transfer fee

    Either $5 or 5% of the amount of each transfer, whichever is greater

  • Foreign transaction fee

  • Credit needed

When you carry a balance, you’re accruing interest, which means you’ll have an even larger balance to repay. And the larger your balance, the longer it may take you to pay off your credit card.

Plus, paying your balance in full has some advantages like improving your credit score. One strategy for paying down credit card debt faster is to use a credit card with an introductory 0% APR period or interest-free balance transfer offer — like the U.S. Bank Visa® Platinum Card, which lets you transfer your balance and make interest-free payments for the first 20 billing cycles (after, 14.49% – 24.49% variable).

U.S. Bank Visa® Platinum Card

On U.S. Bank’s secure site

  • Rewards

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% for the first 20 billing cycles on balance transfers and purchases

  • Regular APR

  • Balance transfer fee

    Either 3% of the amount of each transfer or $5 minimum, whichever is greater

  • Foreign transaction fee

  • Credit needed

Finally, consider using a student credit card because they typically offer periods where you can make purchases and pay your balance interest-free, and the interest rate is usually lower than that of non-student credit cards. Plus, some cards are easier to get approved for if you have little to no credit history.

The Discover it® Student Cash Back, for example, charges 0% interest for the first six months (after, 12.99% – 21.99% variable), has no annual fee and lets you enroll every quarter to earn 5% cash back on rotating categories (such as Amazon.com, gas stations or restaurants), on up to a $1,500 maximum each quarter (then 1%). All other purchases earn unlimited 1% cash back automatically.

This way, students can get rewarded even for spending money on things they need and potentially save on interest.

Discover it® Student Cash Back

On Discover’s secure site

  • Rewards

    Earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases – automatically.

  • Welcome bonus

    Discover will match all the cash back you’ve earned at the end of your first year

  • Annual fee

  • Intro APR

    0% for 6 months on purchases

  • Regular APR

  • Balance transfer fee

    3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*

  • Foreign transaction fee

  • Credit needed

Thinking they don’t need to learn how to manage money until after college

When you’re a student, it can be easy to believe that you don’t have to learn how to manage money if you don’t even have much money to begin with. However, starting from somewhere is always better than not starting at all — and students can definitely start managing whatever amount they do have.

Students who have jobs, be it part-time work on campus or a paid internship, can learn how to manage money by saving a portion of every paycheck in a high-yield savings account or even investing it in an index fund. Ally Online Savings Account and Marcus by Goldman Sachs High Yield Online Savings both offer higher than average APYs so account holders can also earn some interest on their balance, and in the process grow their savings a little quicker.

Ally Bank Online Savings Account

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

    No monthly maintenance fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

    Yes, if have an Ally checking account

Marcus by Goldman Sachs High Yield Online Savings

Information about the Marcus by Goldman Sachs High Yield Online Savings has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Goldman Sachs Bank USA is a Member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

    None to open; $1 to earn interest

  • Monthly fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

And anyone with some money can get into the habit of tracking their spending so they know exactly where they spend the most and where they spend the least. Doing this early on can help lay the foundation for mindful spending later in adulthood.

Bottom line

It’s important to start building healthy financial habits as early as possible, and for many people, that could mean practicing money management while they’re still in college. It’s easy to think that because you’re in college and don’t earn enough of your own money yet that you don’t need to think about personal finance.

Despite this, students are still forced to make many financial decisions through student loans, credit cards and the opportunity to save earnings from campus jobs or internships. And while this might feel overwhelming, building small, healthy habits is better than ignoring money management altogether.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Author: iwano@_84