Money Management Strategies

College Debt Crisis
By Victor Alatorre

The goal of this document is to provide a starting point to one of the biggest challenges for college students: money management. Our ability to attend college is directly correlated to our ability to sustain the financial responsibilities that come with higher education.

Having the right attitudes and behaviors towards, credit, debt, and material acquisition may enable you to expand the possibilities during and after college.

• Average Debt for College Graduates is $27,000
• 875 billion are owed by Students today.
• The cost of higher ed has gone up 400% since 1982

http://www.npr.org/2011/05/16/136214779/college-student-debt-grows-is-it-worth-it
http://www.businessinsider.com/facts-about-student-loan-debt-2010-12
Have you experienced any of the following:

• Shopping and spending money when feeling depressed or bored.
• You break up with your significant other and decide that you need to update your wardrobe to divest the old you.
• Buying things on Amazons or any other online stores (like woot) because they were perceived to be a great deal.
• Spending on games, music, software or videos on consistent basis.
• Taking on responsibility roles to meet family “perceived” financial demands.
• Spending money on activities to pursuit a sense of belonging.
• Assuming that all debt incurred will be overcome after graduation.
• Assuming that material acquisitions are entitlements due to hard work.
• Having multiple credit cards from retail shops like Target, Best Buy, the Limited, Gap, etc.
• Using one credit card to pay for the other one.
• Paying the minimum every month
• Using Credit to pay for groceries, books, car expenses, gas, beer, etc?
• Borrowing money to pay for bills.
• Borrowing money from your parents to meet your minimum monthly bills.
• Big Item Purchases During College

Here is a list of issues associated with college life:

Credit Use
Credit use among students is a big problem. Here are the stats:

• Eighty-four percent of the student population overall have credit cards, an increase of approximately 11 percent since the fall of 2004. (Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)
• Only 2 percent of undergraduates had no credit history. (Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)
• Half of college undergraduates had four or more credit cards in 2008. That's up from 43 percent in 2004 and just 32 percent in 2000. (Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)
• Since 2004, students who arrived on campus as freshmen with a credit card already in-hand have increased from 23 percent to 39 percent. (Source: Sallie Mae, "How Undergraduate Students Use Credit Cards," April 2009)
• 76 percent of undergraduates have credit cards, and the average undergrad has $2,200 in credit card. Additionally, they will amass almost $20,000 in student debt. (Source: Nellie Mae, "Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends")

Note: The current debt average for a college student is $27,000.
41 percent of college students have a credit card. Of the students with cards, about 65 percent pay their bills in full every month, which is higher than the general adult population.

(Source: Student Monitor annual financial services study, 2008)
http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

• A credit card should never be used to:
• pay for trips like spring break or study abroad programs.
• pay monthly groceries, or food when you maintain a balance.
• buy music, software, electronics or things to make yourself feel better.
• fix your car or other emergencies.
• buy clothes to give the perception of affluence.
• travel to visit friends or family in a non emergency situation
• pay for other credit cards or other loans.
• buy beer or any other entertainment consumables.
• Good Use of Credit Card:
• Credit cards are to be used to establish credit history and to procure services and assets with insurance capabilities. For example, the process of buying assets online with the protection of a return or warranty policy from your credit card.

Some credit cards offer cheaper gas or travel miles points. If you have the discipline to only use the credit that you can pay for on a monthly basis, this is also a good disciplined way of saving money.

Paying Tuition, Room and Aboard.

Current annual fees at UW Oshkosh range is in the $13,320.
http://www.uwosh.edu/student_financial/student-accounts/tuition-and-fees
 

Maximizing Student Loans

• Student Loans can be a good tool to finance education, but they can be abused.
• Getting the maximum loan and use the extra money to live or buy items like computers
• Extending education beyond the normal 4 to 5 year span.
• Changing your major your junior year because the classes are getting progressively harder.
• Applying for unsubsidized loans instead of finding alternative sources of income.

Transportation Costs in School

• Buy a car that you can afford. Perhaps one that you can pay in cash or with low payments. College students cannot and should not afford a car payment for a new car.
• Cars don’t make you sexier.
• A car is not an investment.
• Never lease a car in school. Leases are designed to cover the dealer’s depreciated value. Hidden mileage fees can add up.
• Never buy a car you cannot afford like a new car or a car that requires high insurance premiums. Example: sports car, luxury car, gas guzzler, etc.
• Buy a reliable car that takes you from point A to point B. Unfortunately, some of us tend to be emotionally attached to our cars as we see them to be a reflection of our persona. Cars are used as status symbols.
• Buying a car in schools may be a burden you are not ready to confront in school. Insurance premiums, oil changes, tires, gas, parking, registration fees, etc do add up.
• Never buy a car after college to reward yourself for hard work. A car is usually the first large purchase after college. Focus instead on prolonging the life of your current vehicle until debt is paid off.
• Understand the concept of depreciation. When you buy a new vehicle, it automatically depreciates in value 15 to 20 percent. So the first year of payments is the equivalent to paying the depreciated value of the car. This is a payment that does not enhance the value of your asset. 

Travel Abroad

Traveling is an important element of college education, however it can present challenges. While traveling abroad may be a requirement for some majors, make sure the motivators are the correct ones.

Some students use student loans to finance traveling abroad. Remember that you are always better off paying for the experience in cash. When you roll up a travel experience through student loans, you will pay almost twice as much for the experience.
 

Getting Engaged or Married

Regardless of motivation, some people see themselves formalizing relationships through marriage. Marriage celebrations can be an expensive proposition. If you decide to get married before completing your education, make sure the person is the right one and that the expectations are realistic. People go in debt for a one celebration with the hope to break even with gifts and presents. 

Big Item Purchases After College

• Buying a new car: Once again, cars don’t make you a stud. After college one of the biggest mistakes students make is to buy a new car to replace the old beater. It is perceived as a right of passage after getting your first job offer. It is a perceived expectation of success, however it is not the best strategy.
• Buying a new wardrobe to meet the perceived expectations of your new or future employer. Your interviewer is not going to know the difference between a $200 dollars suit and a $2000 dollar suit. Maybe they do, but it wont matter earlier in your career.
• Getting Engaged/Married: Saving for an engagement ring can take time. There is an expectation that engagement rings have to cost 2 months of salary. I’m not sure it is a wise move to spend money a lot of money on a ring that has absolutely no resale value. Getting married can be an expensive proposition. Take a conservative approach and find ways to cut expenses. Do not finance jewelry.
• Buying a House: Back in the 90s and 2000s, anyone with a pulse and willing to commit a signature was able to buy a house. A house requires of financial discipline. With the new restrictions to loans, banks expect a credit score about 700 to review mortgage applications. Furthermore there is now an expectation of 20% down payment. Your debt ratio after college will determine your loan review viability.
• Having Kids: Once you are married and ready for kids, keep in mind that kids are a big expense. On average a couple can spend as much as 12,000 per kid per year on basic needs. Daycare costs can be substantial for a minimum of 5 years per kid.
• Saving for College: It is the hope of many young parents to help their kids finance the cost of education. It is uncertain the magnitude of the future costs of education. If you want to help future generations of your family, start saving the moment
• No Assets: A college graduate has not collateral assets, so getting a bank to lend you money is difficult. I found that A Local Credit Union was willing to lend me money for a low rate. Not as low as car loan, but not as high as a credit card

More later

Links of Interest

http://www.npr.org/2011/05/16/136214779/college-student-debt-grows-is-it-worth-it
http://www.businessinsider.com/facts-about-student-loan-debt-2010-12