Good Morning Everyone. Today we are discussing our Student debts. Today we are talking about everything related to our Credit Cards, our Lines of Credit, and our Student Loans. This post will be sort of a “what not to do” guide to staying debt free and learning how to use our credit products responsibly. We are going to discuss how young people get into debt, what types of debts are ok for students to have, how to break bad financial habits, and what steps to take in order to get out of debt.
How We Accumulate Student Debt
Many of us can not afford to go to College and therefore we apply for credit in the form of Student Loans or a Student Line of Credit. Many of us are not able to work while we study and therefore we apply for a student credit card to help us pay for our monthly expenses. They key to applying for credit while we are still a student is to apply for efficient credit products. We have to keep in mind that Student Loans are for Student expenses, not personal shopping.
Types of Student Debt
A Student Line of Credit can be a very efficient credit product. Usually Student Lines of Credit are a great type of debt for students to have because they are flexible and they have beneficial interest rates. Lines of Credit grant Students a fixed amount of credit; sometimes this amount is based on our income and sometimes it is based on our program of study.
We are only charged interest on the portion of the Line of Credit that we use. While we are still studying we usually don’t have to make payments on our Line of Credit, and for a certain period of time after graduation we are required to make interest only payments. The interest rate on Student Lines of Credit is usually lower than regular Lines of Credit.
A Student Line of Credit is usually given to Students from Banks. It is a revolving credit product which means that we can spend up to our approved limit and as we repay our debt it becomes available to us for use again…like a revolving door.
Student Loans are very similar to Student Lines of Credit except that Student Loans are usually given to Students from our State or Federal Governments. Some colleges offer Student Loans directly to their Students. A Student Loan is a fixed credit product which means that we are granted an initial amount of credit and we will have to pay back that amount in full after graduation. A Student Loan is not revolving and once the loan is repaid it is closed; therefore we no longer have access to the money.
A Student Credit Card may be the easiest type of credit for Students to obtain, but it can also be the most harmful to our good credit score if we misuse our Student Credit Card. There are no regulations on how we choose to use the available money on our Student Credit Card. Unlike Student Lines of Credit and Student Loans the monthly payments on our Student Credit Card do not have to be automatically repaid.
Student Credit Cards require us to make only a minimum payment each month; the full balance does not have to be repaid. This can be very dangerous for Students because we can carry a balance and we are charged interest on the full unpaid balance, this can be very costly. It’s easy to accumulate debt but it can be very hard to pay it off.
Keep these tips in mind when trying to pay off your Student Debts
1. Don’t Ignore Your Debt. It will always be a burden until it is paid off.
2. Don’t Make Only Minimum Payments. Interest can be very costly.
3. Don’t Get More Credit Cards. Having a lot of debt doesn’t make us financially responsible.
4. Don’t Charge It If You Don’t Have the Money. Need I say more?!
Photo by Hagge
Tahnya is 30 years old and lives in Montreal Quebec. She graduated in 2005 from Concordia University, and she currently works for a major International Financial Institution. She recently launched http://www.mediamadam.ca/. You can follow her on Twitter @TahnyaP.