Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.
Student loans are intended to pay for your education, but I’ve known a few people who took liberties with exactly how they used that money. Here are some of the worst ways you can spend those checks:
- Getting a degree in the arts or humanities. This is the sad truth: More than 23 percent of humanities students owe more than $30,000 in student loans, but hiring in that sector is down 40 percent since 2008. Make sure that you can find work that utilizes your degree, or else those student loans will be with you for a long, long time.
- Paying your mortgage. Student loans include stipends to cover your living expenses, but renting is preferable to buying a house and using the student loan to pay your mortgage. If you plan on moving away from the area after school, houses tend to be poor short-term investments. Maintenance costs may pop up unexpectedly, leaving you short. And in general, it’s a bad idea to take on new debt to pay down old.
- Funding your discretionary purchases. This one almost goes without saying, mostly because it’s illegal to misuse federal loans. Look into part-time work to buy clothes, dine out, or go on vacation. The reason is simple: Stafford loans carry an interest rate of up to 8.25 percent, and private loans can be even steeper. You’d be better off putting such purchases on a low-interest credit card or taking out a personal loan, rather than assuming more education debt than you need.
- Paying off credit cards. Speaking of consumer debt, should you ever declare bankruptcy, credit-card debt would be forgiven but you’d on the hook for those student loans until death do you part. Don’t exchange unsecured debt for a loan that is with you for life.
- Not learning how to budget. While you’re getting your degree, you’re also presented with a great opportunity to learn to budget your money on a fixed income. It is a valuable lesson that will serve you long after you leave the ivory tower.
To end on a happy note, congratulations to all the recent grads!
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[...] your student loans. There are myriad ways that people abuse their student loans, from going out to eat to using the money to buy a house. Student loans offer an opportunity to [...]