If you're a college freshman, congratulations! You're now likely financially responsible for yourself.
While that can be exciting, it can also be nerve-wracking — especially if you don't have a lot of money. You have the freedom to control your own budget. At the same time, you may have thousands of dollars in student loans.
How do you make smart financial decisions so you have enough money to spend at school — and don't graduate with more debt than you need?
Yanely Espinal, a financial educator and the author of Mind Your Money, says it's crucial to have a plan. "You're going to need some rules and some systems, otherwise it's going to be chaos."
She offers students advice on taking out student loans, opening credit cards, splitting costs with roommates and more.
Follow this rule when taking on student loan debt
Many students need to take out loans to pay for college. If you're in that camp, here's a rule of thumb: when you graduate, your total debt should not be more than your expected annual salary at your first job out of school, Espinal says. "If you're borrowing more than that, you're already on the path to an unhealthy amount of debt."
To find out how much you might make after you graduate, search for your desired job in The Bureau of Labor Statistics' Occupational Outlook Handbook. Keep in mind you will likely be starting at the entry level and making less than the median annual salary listed in the database.
Practice "loud budgeting"
If you're worried about paying for textbooks next semester or confused about how your new student credit card works, don't be afraid to talk about it with your peers, Espinal says. It's a practice called "loud budgeting."
"In reality, there's probably a bunch of students in your dorm struggling with the same thing," Espinal says.
Opening up about money with your roommate, your new friend group and even your family can make you feel less alone and ashamed about your situation, and even generate creative financial solutions, she says. Maybe you and your floormates start a savings club or try a no-spend month. Or maybe your candor prompts friends to send you job and scholarship applications.
Be smart about credit cards
In college, you may be opening a credit card for the first time. Before you sign up for one, Espinal says to do the following:
Shop around. Go online and look up reviews for different cards. Make sure you're getting the card with the best terms, interest rates and rewards. You can often get credit cards with intro offers of 0% interest for a year if you make your minimum payments.
Keep in mind that credit card interest rates are generally much higher than the ones on your student loans. We're talking 20% or higher compared to single-digit interest rates on your loans, so the interest will accrue fast. Make sure you have enough income to make your minimum payments each month.
Try not to put things on your card that you can't pay off in full by the due date. If you wait to pay, your debt can pile up. And if you can't even make your minimum payments, that can hurt your credit score.
If you are unable to make your minimum payments, call your credit card company and tell them you need help, Espinal says. "Say: 'My payment due date is coming up and I don't have the money. Can you either lower the amount I have to pay or change the due date to a little later so I can come up with the money in a few weeks?' "
Create a roommate agreement for shared costs
College may be the first time you're splitting costs with other people, Espinal says. And you may find that awkward. How do you decide which groceries to split with your housemates? What happens when a housemate doesn't pay their share?
Have a plan for moments like these, Espinal says. That might mean setting ground rules with your roommates around splitting costs for community items.
If you need more help, create a roommate contract, Espinal says. It's a written agreement that outlines the responsibilities and financial arrangements between roommates. Search for a template online, particularly one with a budget.
Don't wait to create your plan. "Do it a week or two after you move in, when you're still in the honeymoon phase of being roommates," she says. "It's not fun, but it can minimize conflict."
Keep applying for scholarships
Many students think that once they're in school, it's too late to look for scholarships. "This is probably one of the biggest misconceptions when it comes to paying for college," Espinal says. Scholarships are still very much available for college students. You just have to take the time to look.
Take 10-20 minutes a week to look for scholarship opportunities for freshmen and sophomores, she says. "The more specific you can be when researching, the better." For example, if you're a Latina woman studying art history, look for applications for students in that category.
Don't overlook small-dollar scholarships. Those $500 and $1,000 scholarships add up. "You can use that money to buy a textbook or a laptop or pay down a credit card," she says.
Start making payments toward your loans while you're in school
This can save you a lot of money in the long run, Espinal says. Say you borrowed $10,000 your first semester of freshman year. And after one month, you've accrued $27 in interest, so now you owe $10,027. If you pay off the interest every month until you graduate, "the amount you'll owe will be exactly the amount you borrowed."
Get a job near campus
If money's tight and you want to minimize using your credit card, consider getting a job near campus, she says. Clock in a couple of hours in between classes at the dining hall or the library to generate some cash flow. Use the extra funds to throw at everything from groceries to treats to interest payments on your student loans.
If you feel embarrassed about your friends seeing you serving coffee or scones at the campus cafe, try not to let it get you down. "Generating income for yourself is never something to be ashamed of. If there's any type of stigma in your friend group, that should be a red flag," she says.
This episode of Life Kit was produced by Clare Marie Schneider. It was edited by Meghan Keane. The visual editor is Beck Harlan.
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