Budgeting 101:

Your Money Guide For Getting Through School

Part One: Managing Debt

Many College and University-bound students get credit card offers before they even set foot on campus. Once at school, they are enticed by credit card companies with offers for free T-shirts, concert tickets or other freebies for filling out an application. Credit card companies are competing to be the first in a student's wallets because they know that students who have their cards are likely to keep them and use them. Credit isn't all bad. In fact, establishing good credit as a student can help you get the best rates on auto insurance, rent an apartment or buy a home, and avoid deposits on utilities or other services. The key to managing credit is to not to get trapped in the mindset of "I'll buy now and pay later." When you do borrow, you want to ask yourself how and when you'll repay the debt - and how much it will cost you. We've created a Borrowing Worksheet you can use to keep track of your debt and create a repayment schedule.

Tips for Smart Credit Use:

• Shop around for the best credit card interest rate. Consider using one card for balances that you'll pay in full and another card with a low interest rate for times when you need to carry a balance.
  
  
• Don't pay interest on items you don't really need, or for things that will be gone by the time you get your bill. Otherwise, it's like buying that item marked up instead of marked down!
  
  
• Read your credit card agreements and the correspondence you get from issuers. There may be important information in them. For example, credit card issuers can generally change your interest rate with only 30 days written notice – even on a card with a fixed rate.
  
  
• Always mail your payments for your credit cards at least 5 business days before the due date. Your interest rate on new purchases as well as any current balance may be raised to a very high rate if you are late.
  
  
• If you pay your debts late, a late payment will likely to be reported to the major credit bureaus and will stay on your credit report for seven to ten years. Your other credit card issuers may raise your interest rates if they see you are falling behind on other accounts.
  
  
• Call your issuers if you can't make a monthly payment on time. Ask them about alternative payment arrangements without damaging your credit or raising your interest rate.
  
  
• Notify your credit card issuer 30 days before you move, and don't assume that just because you didn't get a bill you don't have to pay it. If a bill doesn't arrive, call your card issuer or lender immediately.
  
  
• Try to pay off your total balance each month. Just paying the minimum is a trap: If you pay off a $1000 debt on a card with an 18% interest rate, it will take you more than 12 years to repay.
  
  
• Aim to keep your debt payments at less than 10% of your income after taxes. If you take home $750 a month, spend no more than $75 a month on credit.
  
  

Student Loan Strategies

• Student loans can be a lifesaver when it comes to financing school. However, they can quickly become a major burden if the payments are unmanageable or if you have a hard time finding a job at your expected salary when you graduate. Here are some tips for avoiding problems with student loans later:
  
  
• Calculate the cost of your expected student loan payments before you borrow and compare them to the salary you realistically expect to earn when you graduate. Generally, your payments shouldn't exceed 10% of your expected income. Any credit card payments should be included in that 10%.
  
  
• Graduate school can mean significantly more student loan debt if you must borrow to help pay for it. Consider looking for a job with tuition benefits and attending graduate school while you work.
  
  
• Check with your school and your provincial government for additional programs regarding your career choices and loan forgiveness.
  
  
• If you anticipate having trouble paying back your student loans, look into options for flexible interest relief, debt reduction, disability benefits, and revising the terms of your loan. If you fall behind, you'll have fewer options available to you, so be proactive. Contact the National Student Loans Service Centre for more help at. www.canlearn.ca or by phone at 1-888-815-4514. While you may be anxious to graduate as soon as possible, working full or part-time and attending school part-time may allow you to get valuable work experience while keeping loan balances at a more manageable level.