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Dealing With The Mountain Of College Debt

The average college student, now-a-days, graduates with quite a bit of college debt… Almost $30,000 with a 4 year degree.Add to that: credit card debt, masters programs or professional degrees like an MD and debt can climb to $100,000+.But it is not just about debt.Your college student is learning money habits that could be lifelong.Helping your student understand how to responsibly deal with debt can mean the difference between a life of financial pressure or financial freedom.Minimum Payment ManiaCredit card companies target the college age population…and “cards” can be a very helpful tool in the overall money management picture.Most college students are unfamiliar with the way a credit card works. They falsely assume they can spend up to their limit and make minimum payments.That “thinking” can essentially double the cost of what your student purchases on the credit card. The student also has the psychological burden of the debt plus the interest accumulation to deal with on a monthly basis.At graduation a college student could easily have $30,000.00 in school debt, plus credit card debt. They might be paying for impulsive and careless spending for years.Taming The BeastI recommend a 2 prong approach to helping your student understand and manage their debt.First, I recommend using debit cards versus credit cards.There is a set amount of money in the account and when it is gone, it is gone. Credit card debt just builds and builds and it doesn’t appear real to the college kid, and it turns around and bites them when they graduate from college.They might not have that $100,000.00 per year job, they may have a starting out $30,000.00 a year annual salary before taxes and they’ve got a credit card debt and they have their college debt that they have to pay off. This can go many, many years into their futureSecond, have your student get a part-time job…even if you can afford to pay all their expenses easily.College kids need to have some participation in their finances to learn about money as well as value their education.By getting a part-time job and earning just enough to cover their cell phone and lattes, they learn to make and manage money.Let Them WrestleSometimes they will make mistakes with their finances and it can be good for them to wrestle with the problem. If they get in too deep, you can help…but exercising that financial management muscle is a good thing…and feeling a little financial pressure now can help avoid feeling it a lot later in life.You will find they won’t spend as much money if it is their money versus their parent’s money, or if it comes from a source that they have no obligation to pay back.

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