How students can avoid that nasty four-letter word: Debt
Debt counsellors see a lot of postsecondary students come through their doors. And all too often, it’s after the students have gotten into a pile of debt trouble.
“Typically what happens is we encounter students after they finish school and realize they have a debt problem,” says Brian Betz, debt counsellor with Money Mentors, an Alberta non-profit that helps consumers with budgeting and debt management.
Unfortunately, that’s already too late; the damage is done, many new graduates face a long road to getting their finances back on track.
Students today have to take on more debt than ever for postsecondary education. The average student will graduate with more than $26,000 in debt, according to a 2015 report by the Canadian University Survey Consortium.
But for those starting out, or even students in the midst of studies, a few helpful tips can keep debt to a minimum.
Budgeting is the foundation of good financial management at any age, says Mark Kalinowski, a credit counsellor with the Credit Counselling Society in Calgary.
Simply put, budgets help students focus on what matters.
“If you lose sight of your ultimate goal, your money will also lose its focus and be spent elsewhere,” he says.
Part of the problem is students receive a lump sum loan at the start of the year without a spending plan in place.
“When you do get that money, I would suggest you set aside amounts to cover the essentials,” he says.
Pay your tuition, buy the books and put the rest of the money into a savings account. Then determine the other expenses, not only necessities such as rent, food and transportation, but also for a little entertainment.
Kalinowski suggests paying yourself regularly, just like you would if you had a job. This ‘paycheque’ every two weeks will include enough to cover all or a portion of those aforementioned costs.
“Then it’s about tracking your money,” he says. “And if you find you don’t have enough money at the end of the first month or second month, you have to investigate why.”
Budgets aren’t static either. They’re ever-changing and require that you’re always tracking costs. It doesn’t have to be daily, or even weekly, but you should do a month-end tally.
Betz also says students should beware of credit cards and lines of
If you lose sight of your ultimate goal, your money will also lose its focus and be spent elsewhere. — Mark Kalinowski, Credit Counselling Society
credit — they can be budget killers.
“They have their uses, but can be a nasty trap to fall into. We’d rather see an individual set-up a balanced budget where they’re not spending beyond their means.”
Both experts agree — use credit only for emergencies. And if you head out to the bar, leave the cards at home.
“Cash is a great way to set a limit on any night out,” Kalinowski says.
Often the pitch for credit cards is that you can build a credit score, but it’s important not to rack up additional, often unnecessary, debt. It will make getting ahead after graduation more difficult.
“If you leave school with a boatload of credit card debt, you can’t move on to your next goal — whether it’s buying a house, starting a business or getting your first car — because you have all this debt standing in your way,” says Kalinowski.