After a year of managing classes online, it’s time to head back to school. This may be overwhelming for college students, especially if you need to start managing your finances again. About 70% of students take loans to fund their education. As such, it is vital for you to understand the impact of college debt and understand how to make financially sound decisions.
And it’s not just about the education fees. Students are wary of making budgets to buy the essentials needed for their dorm rooms or off-campus residences, accessories, stationery, food, etc. In all, college spending in 2021 is expected to reach about $71 billion.
With the added excitement of getting back to campus and interacting with fellow classmates, it is all the more important to understand how to manage finances. So, if you’re a student or a parent of a student, we’ve put together a guide on how to understand student debt better and take the right decisions according to your situation now and in the future.
Understanding your student loan
Yes, as a student, you are understandably no doubt excited to get back to your classes, living on or off-campus, interacting with your peers, etc. But this is also a time when learning about finances and how it impacts your present and future is very important. If you don’t handle it right, student debt can be a burden to bear for many years, even decades into the future, especially if the amount you’re borrowing is significant.
Before you sign the loan documents, go through the terms and conditions thoroughly. It may be a bit tiresome to read all the clauses, but make sure you understand fully well what you’re getting into. Besides this, educate yourself on how college loans work, how the interest is charged, and how to manage it right from your first paycheck. There is plenty of educational material available online.
Back to school: Get started right away
- Apply for as many scholarships as possible. If you qualify for even one of them, it will help reduce your debt.
- Try and pay the interest component of your loan while you’re still in school. Try taking up a part-time job or ask your parents if they can help manage this.
- Use your student loan only to pay for tuition and necessary things.
Start working while you’re still in school
A good way to start being financially responsible is to pick up a part-time job in college. You may qualify for jobs that are available on campus too. Yes, juggling work and studies can be tough, but it is worth it for the following reasons:
- You can start paying for your own expenses instead of relying on your parents or on your student loan.
- It will help you avoid charging your credit card for every expense.
- Even a few hours of work every week can help pay for food and gas.
- You can even start contributing towards paying the interest portion of your loan.
How to make back to school easy for you
- Most students will be looking to work. So, start applying online for local jobs even before your classes start.
- Search for jobs that give you the flexibility to manage your studies and free time.
- Look for jobs that can be done remotely from any location over the internet.
Create a budget for yourself
Learning to create budgets is a crucial part of being financially responsible when you’re back to school. Even if you don’t have a job, you need to handle the money you are getting very carefully. Whether the source is from your parents, your student loan, or a scholarship, you need to know how to spend and how much to spend. This will help prevent running out of money towards the end of every month, something most students struggle with.
Why budgeting is important
- Creating budgets gets you into the habit of prioritizing your expenses, setting aside money for every type of expense, tracking spends, and saving up money.
- It reveals bad spending habits and shows you what not to do.
- Budgeting helps develop a healthy attitude towards money and sets you up to manage money wisely in the future as well.
Always track your spending
It’s not enough to create a budget. It also matters whether you follow it or not. Here’s how tracking your spending can help:
- Tracking your money will help you understand what you can afford and what you can’t.
- You will know exactly where your money is going and help you identify areas of overspending.
- It helps set up spending limits on your cards as well so that you don’t overshoot your budgets.
- It can help you avoid credit card debt.
Learn how to use credit wisely
Credit cards have financially destroyed many people. But if used wisely, they can be highly beneficial. Here are a few facts about student credit cards:
- They are a good way for you to start building credit but apply for one only if you’re working. This way you can pay off the dues every month.
- They can help you manage your finances.
- Before applying for one, make sure you understand how credit works and how to use it wisely.
- Never use them to pay for something you can’t otherwise afford.
- Start with a card that needs upfront payments for the first few months.
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