College and The CARD Act

There are two real changes that have taken place for college aged youth.

– You will not be sent any pre-screened offers if you are under 21.
– You will not be able to receive a credit card if you are under 21 unless you can a) prove that you have sufficient income to pay the money back or b) you have a co-signer over the age of 21.

What does that mean for college students? It means that no longer will many college students have access to easy credit. That means that students will really have to buckle down and look at the bigger picture. Before you go to your parents and beg them to co-sign on a credit card with you, think about the potential implications of you racking up bills that you might not be able to pay and your parents becoming frustrated by your inability to pay. If you have a card together and you can’t pay it falls to the co-payer to foot the bill.

Many college students don’t even need credit cards while in college. Credit cards are a tool that can be used in emergency situations, but they tend to have high interest rates. I’d think long and hard before turning to credit cards to pay for my college expenses. Think about this, before The CARD Act, the average American college student graduated with a little over $3,000 in credit card debt. The average APR was 14%**. Paying the minimum balance, let’s say $50 a month, it will take you 9 years to pay off the debt. Instead why not be proactive and figure out what you want to spend money on and then come up with a plan to bring in at least that much money. Each semester students should:

Write down all income that you anticipate.
Write down a spending plan for all expenses.
Keep an eye on your credit score so you’ll be able to get a good job after you graduate.
Monitor your checking accounts closely to make sure you’re not needlessly overspending.

Get out of college, not into debt.

PEACE

* Undergraduates are carrying record-high credit card balances. The average (mean) balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004’s $946 to $1,645. Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study. (Source: Sallie Mae, “How Undergraduate Students Use Credit Cards,” April 2009)

** Average APR on credit card with a balance on it: 14.31 percent, as of December 31, 2009 (Source: Federal Reserve’s G.19 report on consumer credit, March 2010)

Why You Need a Spending Plan

Have you ever pulled a $20 out of the ATM and two hours later you have no idea how you spent the money?

That’s why you need a spending plan. Most of us spend small amounts of money everyday on things that we don’t event remember buying. That $1 soda at work takes up $240 a year. How many times have you walked into a store to grab 1 thing and come out with waaaaaay more than just 1 thing? All this extra spending on small things is part of the reason you may be in debt.

Having a spending plan is a way to help you recognize what you’ve been spending your money on and what changes you may want to make. It works like this:

1) Go through your bank statements and credit card statements. Put the money you spent in categories so you can see what you spent your money on. I use a software program because it’s easier than writing everything down. Notice all the money that you spent on non-essential items.

2) Don’t freak out when you see how much money you waste every month.

3) Make a list of your fixed expenses; the bills that you have to pay every month. For example, your rent/mortgage, lights, water, gas, car insurance, credit cards, etc.

4) Make a list of your variable expenses; the bills that you have to pay sometimes. For example, your yearly payment for your magazine subscriptions, your quarterly tax payments if you’re self employed, etc.

5) Make a line on your list that says, “me”. You are going to start paying yourself every month just like you pay everyone else. Creating, or adding to, an emergency fund is one of the main reasons you need a spending plan. Take all that money you’ve been wasting and put it into an account that you can use when you’re in a jam. I suggest trying to build up 6 – 12 month’s worth of income. When an emergency comes, and there will always be an emergency, you’ll be ready.

6) Make a line that says, “retirement”. I don’t care if you haven’t even opened a retirement account and you can only put $5 in it. You’re going to start putting money aside for your old age. As your account swells with cash you can take time to think about where you’d like to invest it. The first step is to start. The more you put away now, the less you’ll have to worry later. Compound interest will make a huge difference in your retirement lifestyle.

7) Whatever money you have left, go wild! You know what your fixed expenses will cost every month, what your upcoming variable expenses will be, you’ve put money away for your emergency fund, and you’re started contributing to your retirement account. The money left over is called your “discretionary income”. Take this money and enjoy yourself knowing that you’re doing everything you need to be doing to become, or stay, financially stable.

If you find that you don’t have enough income to cover all your expenses listed on your spending plan, then you have two choices. You’re going to have to increase your income or reduce your expenses and no, cutting out saving for your emergency fund and/or your retirement fund are not options.

You are responsible for your life. You have the power to be financially stable, or not, by making smart choices…… and that’s why you need a spending plan.

PEACE

B.E. 10 Wealth for Life Principles

Thought this might be helpful. From Black Enterprise Magazine:

1) I will live within my means.

2) I will maximize my income potential through education and training.

3) I will effectively manage my budget, credit card, debt, and other tax obligations.

4) I will save at least 10% of my income.

5) I will use homeownership as a foundation for building wealth.

6) I will devise an investment plan for my retirement needs and children’s education.

7) I will ensure that my entire family adheres to sensible money management principles.

8) I will support the creation and growth of businesses owned by people of color.

9) I will guarantee my wealth is passed on to future generations through proper insurance and estate planning.

10) I will strengthen my community through philanthropy.

These are great guiding principles to use in your financial life. Please read each one carefully and consider how it might be applied in your life. I keep a copy of them taped the refrigerator in our office to remind everyone of what we’re here to do.