Borrowing tips for college students

Borrowing money is a part of life. Following these five tips now as a college student can help lay the foundation for good borrowing practices in the future and help you to stay on top of your credit history.

1. Use student loans wisely.
If you are a college student, you are likely to have student loans. In order to keep your credit in good repair, do not borrow more than you need and use the funds wisely. You should use a student loan for tuition, books and living expenses -- not a shopping trip to the mall.

You have a couple of choices with student loans. A subsidized Stafford loan is need-based and has the benefit that you are not responsible for the interest until six months after graduation, which is when you must start repaying the loan. Unsubsidized Stafford loans are not need-based, and the interest begins building right away. You can control your costs by making interest-only payments while you are still in school.

2. Use credit cards wisely.
College students often find themselves inundated with credit card offers. Although you do not have a lot of cash on hand as a student, you do have tremendous earning potential once you are a college graduate. Lenders hope to make you a loyal customer now so that you stay with them when your earning (and spending) potential is much greater. Using credit cards wisely can be an effective way of building good credit. Abusing credit cards, however, is the fastest route to needing credit repair. It can be tempting to use credit cards to make purchases that you just don’t need. If you do choose to get a credit card while in college, use it in one of two ways. Either keep it only for emergencies, or treat it like a bank account each month. Make all of your purchases on the credit card for one month, but subtract all of the funds from your bank account. Then, pay the balance off in full at the end of the month. That way you can help build your credit history without accruing debt.

3. Use a cosigner if needed.
As a college student, you may find it difficult to get a loan for big purchases, such as a car. Or, if you do find a lender who will give you a loan, the interest rate may be astronomical. A way around this is to have cosigner. A cosigner adds his/her name to the loan and accepts the obligation for repaying the loan. So if you default on the loan for some reason, the cosigner has to repay it or be faced with a penalty on his/her credit history. A cosigner can also help if you need credit repair. If your credit history has suffered, a cosigner can help you get a better interest rate.

4. Understand the total cost of a loan.
To a college student who has never had a loan before, a loan may seem like free money. It is definitely not. All of the money you borrow must be repaid. But it doesn’t stop there. There is also the interest on the loan that must be repaid. The longer you take to repay the loan, the more interest you pay. It can quickly multiply the cost of the loan. In order to keep your credit in good shape, know the total cost of a loan before getting it so you don’t overextend yourself.

5. Stick to a budget.
While you’re a college student, it is best to avoid borrowing -- except for student loans, which are considered “smart debt.” You don’t want to live beyond your means and therefore need to repair your credit in the near future. Instead, create a budget and stick to it. This is a time in your life to be frugal. Spend on necessities and be patient. After college -- when you have a steady income -- is the time to think about luxuries.

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