College life is complicated and with so many changes going on in our lives at the time we begin college we often feel lost and confused. We must choose a major, pay for college, learn to do many things on our own that we have never done before and finance it all with very little money and time. If only we had a magic wand or three wishes from a genie to help us through these many obstacles. Well I don’t have a magic wand or wishes to grant, however I have something that can be beneficial to help you through this trying time.
I have asked a few great bloggers to help me create some posts to hopefully help you recognize and avoid some errors we all make. This series will provide you with some short stories of times where we made a financial mistake in college, and how we overcame them. I am hopeful that you may be able to learn from our mistakes and that we can help you potentially prevent some of the same mistakes. If you like us have already made some of these same mistakes, I am hopeful that this series may help you to realize that you are not alone. Even with mistakes like these, we can turn our financial situations around and begin to build a brighter future Today’s featured blogger is the owner and blogger at www.sandraparsons.ca and an exceptional freelance writer.
When you think about financial mistakes people make during their college years, student loans are probably at the top of the list.
Statistics Canada data from 2014-2015 show that among university graduates who earned a bachelor’s degree, the average federal student loan balance was $15,478, with 21% leaving school owing more than $20,000. But remember, those figures only account for federal loans. Students also take on provincial loans, personal bank loans, and worst of all, credit card debt.
Results of a poll of 2212 Canadians aged 21-39 with a college diploma or university degree indicated that 67% had student debt upon graduation. Of those, 77% had regrets about their decision to take on debt. Most students with such regrets wished they had spent less and worked more. But as any post-secondary grad knows, taking on much part-time work while pursuing full-time studies presents a time management challenge.
I’m lucky to have attended university in my hometown, meaning I had the option of living at home for free. I also had financial help from my father and grandmother, resulting in me being responsible for only about half of my tuition and books. These fortunate circumstances paired with decent time management skills that allowed me to work part-time should have set me up for financial success. Sadly, that was not the case.
Although I never had a student loan, I got my first credit card at 19 and proceeded to immediately fall into the age-old trap: treating credit as free money.
College Money Mistake #1: I Didn’t Understand Credit Cards
I remember the day I applied for my first credit card.
I was 19, and I was standing in the lineup at CIBC with my boyfriend. I wasn’t a client of CIBC, but he was, and he was waiting to make a deposit. A bank teller approached us in the lineup and asked if we were students. When we replied that we were, she offered to sign us up for a student credit card with a $500 limit.
Right there in the lineup, she collected my personal info and let me know that if I were approved, my card would arrive in the mail within a couple of weeks. I was thrilled when it did – $500 of free money!
What’s wrong with this picture?
Later in life, I went on to work in banking, and am now appalled when I look back at this transaction. I didn’t really understand how credit cards work, and she didn’t take the time to explain it to me. Sure, I should have taken the responsibility to educate myself, but she had a professional obligation to explain it.
In my mind, I was getting $500 to spend as I pleased. I knew I’d have to make payments, but I didn’t understand that a 20% annual interest rate meant minimum payments would barely put a dent in a maxed-out balance. I also didn’t understand the implications of missing a payment.
College Money Mistake #2: I Maxed Out My Credit Card and Accrued Interest and Fees
As you can imagine, it didn’t take 19-year-old me long to blow through $500. If I’m honest, it was mostly spent on food and shopping. When my card started getting declined for being maxed out, I realized I had to start making payments.
As I now understand well, when you max out a credit card and don’t pay the balance in full, the accrued interest pushes the balance owing above the limit. Most credit cards, including the one I had back then, levy an over-limit fee when this happens. The over-limit fee on my card was $25, and it was applied each month the balance came in over $500.
Suddenly that $500 credit card was getting pretty expensive. A $50 payment here and there was barely covering the interest and fees. With a strategy like that, I’d never pay down my balance.
College Money Mistake #3: I Didn’t Pay Attention to Due Dates
I didn’t understand that the due date printed on my statement wasn’t just a polite suggestion. Unfortunately, I didn’t realize that if I failed to make the minimum payment by the due date, my missed payment would be reported to the credit bureau, harming my credit score.
Even if I had understood it, it might not have made a difference to 19-year-old me. What did a credit score matter to me? I wouldn’t be applying for auto or home financing any time soon. What I didn’t realize was that a poor credit score could impact my ability to do something as simple as getting a cell phone contract.
Money Mistake #4: I developed Poor Financial Habits that Were Hard to Break
Eventually, the consequences of my actions set in, and I got that credit card under control. I’m lucky it was only a $500 card; I shudder to think of the trouble I would have gotten myself in had it been higher.
The unfortunate truth, though, is that I developed poor financial habits that persisted throughout my undergraduate years. I learned the importance of due dates and minimum
payments, but I continued to live beyond my means and use credit cards as a crutch to support a lifestyle I couldn’t afford.
In the last year of my bachelor’s degree, I moved into an apartment with my boyfriend. The move meant I had additional expenses – how do you think I financed them? By that time, I had mastered making payments on time and had improved my credit score, meaning I could get cards with higher limits. Translation: I could spend even more money I didn’t have.
When I graduated, I had about $3500 in credit card debt. Now, I know this is relatively low compared to national student debt averages, but with such high interest rates, it was tough to pay back.
Truthfully, it wasn’t until I was 24 and working in banking that I learned the importance of kicking my credit card habit. What I eventually ended up doing was getting a line of credit at a bank employee rate and using that to pay off my credit card debt. I then set up a regular automatic payment to my line of credit until I paid back the balance. Without the discounted line of credit, it probably would have taken years to pay back that debt – and it was only $3500!
Key Take Away: Never Carry a Credit Card Balance
My college money mistake cost me hundreds, probably thousands, of dollars in interest over five years. It also was the beginning of a dangerous habit that I was lucky to curb before it got out of hand.
The good news is, I eventually learned my lesson with credit cards. Today, I use credit cards like a boss – I’d say I’m something of an expert on the subject. I maximize rewards, use them to travel for free, always pay my balance in full, and never pay a cent in interest.
What was your biggest college money mistake?
About the author:
Sandra Parsons is a freelance writer, behavioral finance expert, and blogger. She has a master’s degree in psychology and believes small behavioral changes are the key to big life changes – including financial ones. When she’s not creating content for clients, she’s running her own blog, www.sandraparsons.ca Follow her on twitter @SandraLParsons