7 Financial Must-Dos for College Students

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Updated on Tuesday, July 29, 2014

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MagnifyMoney’s financial back-to-school checklist for college students

1. Understand your student loans

Ensure you know if your loan is federal or private and understand the difference

Don’t take out loans for discretionary spending. Each $100 you take out can cost you $170+ over your lifetime.

2. Set up a budget

Spend a month tracking all your spending to understand how much money you have coming in vs going out.

Set up a budget outline to keep yourself from spending more than you have coming in.

3. Switch to an Internet-only bank

Avoid bank fees eating up your hard-earned money by switching to an Internet-only bank – many have no ATM or overdraft fees.

4. Have a little wiggle room? Pay yourself first

If you can put even $2 a month into a savings account, get into the habit now. Having the foundation of saving will serve you well in the future.

5. Build a strong credit history

Use your four years in college as preparation for your post-graduation financial health. Begin establishing your credit history so it’s easier to rent an apartment, buy a house or get a car loan after graduation.

6. Consider a credit card

A credit card is a simple way to build your credit history, but you must use it responsibly.

Make a small purchase or two each month and pay your bill on time and in full

7. Parents, send your student an allowance without any bank fees

If you’re kind enough to send your student an allowance, consider using an account that avoids overdraft fees and ATM fees.

Details for all these tips can be found below.

Handling Student Loans

We know that times have changed, and college is much more expensive now than before. You used to be able to get a side job to pay for your education. But we still think you should get a side job – to pay for your living expenses.

There is a big temptation to use loan proceeds to fund a lot of your discretionary spending, including nights out, vacations and some luxury items. But, be careful. Every $100 you spend could end up costing you almost $170 or more over your lifetime (3.86% interest rate over 30 years).

Although $100 may not seem like a lot, it will translate into hours of your working life to pay it back. So, take that side job and keep your debt load as low as possible. You will thank yourself later.

When deciding on loans, we recommend seeking federal loans and maxing out those options before taking on any private loans. Here’s why:

  • Federal loans are at fixed interest rates while private are variable (some up to 18%)
  • Some private loans can require repayment while you’re still in school
  • Federal loans could include income-based repayment plans or student loan forgiveness while private loans typically don’t.
  • Private loans are not subsidized
    • Undergraduate students who qualify for subsidized loans will have their interest paid by the government while they’re still in school

Find an extensive break down of federal vs. private student loans here.

Learn how to budget (seriously, just do it)

It’s a tale as old as time, and usually elicits eye rolls, but budgeting is essential to financial health.

There are various ways to budget your money. Some track each and every penny, while others focus on saving money, paying off bills and then evaluating how much is left to spend for the month.

Regardless of your preferred method, you need to have a solid grasp on how much money you have coming in each month and perhaps more importantly, how much is leaving your bank account.

There are various apps and online products you can use to track your spending including Mint.com and Prosper Daily.

If you seem to be constantly low on money – or heaven forbid a serial overdraft offender – then commit to spending a month tracking each penny you spend so you can spot the leaks in your budget and plug them up.

Consider automating your savings and at least some of your bills, so you don’t have to take the time to do it manually. Don’t forget that one missed credit card payment does major damage to your credit score.

Switch to an Internet-only bank

As a student, you most likely will have a low balance in your checking account. Your goal is to avoid monthly fees, ATM fees and the overdraft trap.

The best way to avoid all of these fees and traps is to open an account with a branch-free (Internet-only) bank. Most Internet banks charge no monthly fee and have no minimum deposit requirement.

Even better, some Internet banks (like Ally and Bank of the Internet USA’s Rewards Checking) give you free, unlimited use of any ATM in the country. They won’t charge you a fee for using an ATM, and will reimburse any fee charged by the other bank. Ally reimburses at the end of every month, and Bank of the Internet reimburses the next business day.

Overdrafts can become incredibly expensive very quickly.

Making mistakes at large banks (like Bank of America) can cost you up to $140 per day. Fortunately, online banks can drastically reduce the cost. Ally will charge a maximum of $9 per day. Bank of the Internet USA and Simple have no overdraft fees and no returned payment fees.

There are two limitations to Internet banks: depositing cash and check posting times. If you need to deposit a lot of cash, Internet banks are less convenient. You can buy a money order at a grocery store, post office, WalMart, or convenience store to deposit cash into an online account.

If you have a check to deposit, you can now use your mobile phone. At Ally Bank, you can deposit up to $25,000 per day. And at Bank of the Internet USA you can deposit $10,000 per day. However (and especially during the first month), the hold can be longer than depositing at a branch.

As a digital native, you probably get paid electronically, you use Venmo to pay friends and you rarely visit a bank branch. To make banking free, use an Internet bank and never think about fees again.

You can see our list of online fee free accounts here.

Pay yourself first and set up a savings account

From Ramsey to Orman to Chatzky, personal finance experts everywhere are unified in one piece of advice: save money.

The schools of thought on how to save may vary, but college students should get in the habit of embracing the mantra “pay yourself first.”

Instead of seeing how much money is left at the end of the month, you should always save a percentage of each paycheck. Even if that percentage is 0.5 and all you can afford to tuck away is two dollars a paycheck, it’s about developing the habit now.

Your savings should also be squirreled away in a savings account, not kept in your checking account. Setting up a savings account is simple. You can look into doing one with your current bank, but we recommend using an Internet-only bank. Why?

1) No minimum deposit with an Internet-only bank like Ally. You can open up a savings account with your two dollars a month. Bank of America would require you put down at least $25.

2) They have higher interest rates. Ally offers 0.87% while Bank of America will dish over a whopping 0.01%. It might not sound like much, but it can make a big difference in the long run.

If your job pays you in cash, then you may be stuck with a traditional bank. You can deposit a check with your smartphone (or a computer scanner) for Internet-only banks, but depositing cash with your smartphone…well, that’s not an app for that.

Read more here to learn about the steps of paying yourself first.

Build a strong credit score and report

Credit scores are part of your “real world report card.” The constant grading doesn’t stop once you’ve left school. Lenders determine if you’re a responsible borrower by viewing your credit scores and credit report. And it isn’t just credit card companies and loan officers checking them out.

Looking for an apartment? Your landlord will want to run a credit check. Applying for a new job? Your future employer could give your credit report a review.

It takes diligence, responsibility and the right tools to build a strong credit score, but first you have to establish credit history. Unfortunately, you do need a debt tool (ie: a loan or credit card) in order to begin establishing credit history. However, with a properly used credit card, you should never be in consumer debt.

Five factors determine your FICO score:

Payment history (35%): do you make payments on time? Missed payments can crush your credit score quickly.

Amounts owed (30%): the more debt you have, the lower your score. But even more important than the total amount you owe, is the amount you owe in relation to your total credit limit – which is called utilization. If you max out every card you have, you will get punished.

Length of credit history (15%): the longer you’ve had credit, the better. This is one reason to establish credit history in college instead of waiting until after graduation.

New credit (10%): this looks at how many new accounts you have opened, and many times you have applied for credit.

Types of credit used (10%): the more types of credit you have, the better. So, someone who has successfully managed a car loan, a mortgage and a credit card would score better than someone who just managed a credit card successfully.

If you’ve taken out a student loan, in your name, for school then you’ve already established one type of credit being used. Add a responsibly used credit card on top, and you’re easily improving your score.

Just remember: one missed payment can annihilate a great credit score.   

Get a credit card

College students are in a unique position to use credit cards to their advantage.

Yes, credit cards can be used to accumulate debt, but the savvy student will use swiping plastic as an opportunity to establish a healthy credit history.

However, part of owning a credit card is being responsible. Not everyone is ready to handle the adult task of only charging what he or she can afford and paying the bill on time and in full each month.

Know yourself. If credit card bills would get lost in a haze of class projects, thesis papers, keggers and football games, then don’t apply for one.

Avoiding credit card debt in college is one key to financial success post-graduation.

A student who incurs $4,000 of credit card debt at a 21% interest rate (low for a student card) and pays only the minimum due, will take 26.5 years to pay off the debt. Even worse, he or she will spend $10,554 in interest alone!

Use our calculator to see how much credit card debt could cost you.

How to send money to your student without incurring overdrafts

Are you a parent sending your child off to college and being nice enough to send them money? The last thing you want is for that money to be eaten up by monthly fees and overdraft expenses.

There are some great, new options out there to send money to your children at school.

If your son or daughter opens an Internet account (like Ally Bank or Axos Bank), then you can send funds to them via PopMoney. If you are more comfortable with Venmo, then Simple is a great online banking option.

All of these accounts have no fees, including no overdraft fees and unlimited free ATM withdrawals.

Another interesting option, if you are not comfortable using PopMoney or Venmo is Bluebird, by American Express. You can find the Bluebird cards at Wal-Mart and get two cards on one account: one for you and one for your child. You can then put money onto the card at any Wal-Mart. And the account has no minimum balance requirements, no fees and no overdraft fees. Your child will be able to use the card anywhere American Express is available. The only cost is for a withdrawal at an ATM, which is $2 (when you use a MoneyPass ATM). ATM withdrawals are free if you have a direct deposit onto the account, which you child should do if they have a job. Bluebird is like any other bank account (you can write checks, pay bills online, etc), just without the fees.

We often hear from parents who are frustrated by the overdraft fees (typically $35 each) and monthly fees (could be $10 or more per month) that eat into allowances and hard-earned money. The good news: with a bit of forward planning, you can virtually eliminate all of those fees.

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