Expert Financial Advice for College Kids: Save and Pay Bills on Time

College can be an exciting time for young people but, for many, assuming greater financial responsibility for their lives can be fraught with pitfalls.

Mellody Hobson, "Good Morning America's" financial contributor, went to the University of Chicago this week and took questions from students about loans, savings, credit cards and spending.

VIDEO: Mellody Hobson advises college students on how to start out on the right track.Play

She also gave them tips on how to develop good financial habits.

Start Saving, Hobson Says

One of her tips to students was that they start saving. While she acknowledged that students generally find it hard to save because they don't have a lot of extra money, she encouraged them to put some aside, even a little bit at a time.

"Let's say you have a job and you're making $500 a month," she said. "If you could save $50, that would be fantastic. If you can save $25, it's still great. All you're trying to do is get into the habit of saving."

For one student majoring in economics, Hobson said the young woman ideally should have three months' worth of living expenses set aside. But Hobson acknowledged that this could be "a pretty aggressive goal right off the bat."

In cases such as this, Hobson said, students should carefully review their budgets and consider not purchasing non-essential items.

Limit Number and Kinds of Credit Card

Possessing a credit card may be important for establishing credit in the student's name and for covering expenses in an emergency but it is easy for students, who generally aren't financially disciplined, to rack up a lot of debt with high interest rates if they get multiple cards.

The average student graduates with about $4,000 in credit card debt, she said.

Hobson said she has always believed that "you only need one credit card."

Some cards are worse than others, she said.

"Store cards have the highest interest rates of them all," she said. "If credit card debt in general is bad, store cards are the absolute worst debt that you could have."

Paying Bills on Time Is Vital

She also cautioned that credit cards are only one aspect of building a good credit history, and advises students to pay all their bills, including cell phones and rent, on time because those payments affect students' credit history.

"Just paying your bills on time is the best thing you could possibly do," she said. "That's the number one way to build up your credit."

How to Rebuild Damaged Credit

For students who have gotten into trouble by running up credit and paying late, Hobson advised them to talk to credit card companies and explain any difficulties they are having in making their payments.

"Instead of just walking away, I'd make some good-faith effort to show that you plan on standing up for what you've spent," Hobson told one student who failed to follow through on a settlement agreement she made with one creditor. "And even though you can't do it in the terms they have set … you want to show that you're trying very hard to make this work."

Students also should attempt to negotiate payments they can afford.

Creditors know that many people are finding it hard to pay their bills is this tough economy, Hobson added, so any money that a student can pay toward a debt is better than no money at all.

Hobson also advises students to know their interest rates, track their credit reports at and join their school's credit union, which will typically have lower minimum balances and lower fees than traditional banks.

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