College students need to handle debt, credit cards wisely

— -- In tough economic times, success in college often depends as much on money smarts as book smarts. Risky financial behaviors, such as paying bills late or paying less than the minimum due, maxing out credit cards or taking out payday loans, for example, can jeopardize a student's college career.

Students who exhibit one or more such risky behaviors say they're less likely to graduate than students who don't take on such risks, according to a University of Arizona study published earlier this year.

Poor money management spills over into other areas of students' lives, too, say researchers Joyce Serido and Soyeon Shim, who surveyed more than 2,000 freshmen at the university. Money problems can strain relationships with family and friends and negatively affect students' health and psychological well-being.

Students heading to college for the first time in the next few weeks can start immediately to keep their finances fit. Knowing how much you need to pay for helps, says Kristy Vienne, director of the Student Money Management Center, a personal finance education resource for Sam Houston State University students. Some steps to take:

Keep your parents involved

Your parent or guardian should be in the loop, says Lynne Strang, spokeswoman for American Financial Services Association.

Figure out student expenses per month — from essentials such as laundry and food, to entertainment and clothes. Then determine whether parents will contribute to the cause. "Together, go through that list, and agree upon a set dollar amount," she says.

The family discussion sets clear financial limits and ground rules for who pays what. When the money's gone, "it's gone," Strang says. "You need to pace yourself."

Track your expenses

Students might think a cup of coffee every morning is not much. But $2 a day can add up to more than $700 a year.

Jinhee Kim, an associate professor teaching a personal and family finance course at the University of Maryland, tells students to record every purchase. "When students actually track those expenses, they realize how much they are spending on little items. And small things add up," she says.

That's what happened to Brandy Burke, 20, who got her first credit card as a sophomore at Sam Houston State and ended up $500 in debt.

"I spent most of my money on eating out," she says. McDonald's and Jack-In-The-Box were frequent destinations. Burke went to Sam Houston's Money Management Center for help with budgeting. Recording purchases helped her find what was burning a hole in her pocket.

Tracking expenses also helps you see what you spend regularly on essentials, says Angela Caddell, director of Oklahoma Money Matters, a personal finance education program. That information will help you measure whether you need to increase or decrease the amount in your projected spending plan.

Start saving some money

Paying yourself first — setting aside about 10% of income every month in savings — is a good strategy, Vienne says. Having money on hand is useful, in case something happens, such as "you get up one morning, and you need four new tires," says Patricia Donnelly, interim director of Student Money Management Services, a personal finance education resource for Bowling Green (Ohio) University students.

Set financial goals

Write one down and set a deadline to achieve it. That way, you can see a tangible finish line, Donnelly says. It may help you save to pay off debt, or to afford a spring break getaway.

Burke says her short-term goal was to save money every two weeks. Her midterm goal was to pay off the credit card, which she did in three months.

Get a job

Working students pay more bills on time and keep up with credit, Serido says.

But working more than 20 hours a week can hurt your grades, according to a study by Nellie Mae, a student loan program of college-financing company Sallie Mae.

Use credit cards wisely

Credit cards can be powerful tools — for good or ill.

With a good credit score, you can rent an apartment, purchase a house or make payments on a car after graduation. A low score hinders all of the above.

"Your GPA (grade-point average) is obviously an important thing for relatively a short period of time," says Adam Levin, chairman and founder of Credit.com. But a credit score is "this other three-digit number that follows you your entire life."

Some 84% of undergraduates on college campuses have credit cards, according to a study this year by Sallie Mae. By graduation, seniors in the study averaged $4,100 in credit card debt.

That's in addition to student loans. Average student loan debt is around $20,000 for public universities, and $28,000 for private, according to the U.S. Department of Education.

A new law that goes into effect Feb. 22 will make it harder for students younger than 21 to get a credit card. Minors will need a co-signer unless they prove they're employed and can handle the responsibility. The credit limit will be capped at $500, or 20% of total income, whichever is less.

Levin says if you do have a credit card, try not to use more than 10% of allowed credit, and try to pay off as much as possible on a monthly basis.

Set up a bank account

Try looking for accounts geared to college students, says Carol Kaplan, spokeswoman for the American Bankers Association.

"More than half of large banks offer special checking accounts for students — free or discounted accounts," she says. But keep in mind these accounts may limit bank transactions.

If you choose to get a checking account, you can opt for a debit card.

Just be aware that you can get into debt with debit cards, too. Many banks allow you to spend more than you have in your bank account, then charge you a steep fee for doing so. Another drawback: Some debit cards don't offer protection in cases of identity theft, Strang says.

PayPal on Tuesday unveiled an account option aimed at teens and young adults. Parents place funds in a PayPal account that's available to the student online and off via a debit card. If the student needs more money placed in the account, they can text parents. Parents then send a text to PayPal authorizing a transfer of funds into the account. Parents can also transfer funds online from their PayPal account.

If someone charges more than the balance, the card is declined; there's no overdraft fee. But PayPal charges students a dollar if withdrawing from an ATM. "You can't spend more than what you have," says Don Fotsch, vice president of customer experience and design at PayPal.