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3 Financial Literacy Lessons Students Need to Combat Debt

Samantha Rose
Samantha Rose is a personal finance writer covering financial literacy for OppU. Her work focuses on providing hands-on resources for high school and college-age students in addition to their parents and educators.
Read time: 4 min
Updated on February 14, 2022
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Debt is everywhere. Here’s how to avoid it.

Have you taken a look at debt in America today? 

Student loans. Credit cards. Overspending.

These financial pitfalls may seem unavoidable, but they’re not. With the right knowledge and skills, young people can make smart decisions and start to build their financial health. 

Here are three critical lessons to get started.

No. 1: How to evaluate student loans

Student loan debt in the United States is about $1.6 trillion and rising. Grads are struggling to pay down debt and freshmen keep borrowing. But there are ways to fund an education without digging a hole of unmanageable debt. 

Research several college options

Pick a mix of free, affordable, and expensive schools. 

State-funded schools often provide scholarships and grants for low-income students, who may otherwise not be able to afford college. Don’t set your sights solely on an expensive private institution. There is real value in a cheaper alternative.

Look for money in all the right places

Explore all of your financial options before settling on student loans. Scholarships, grants, and work-study are all great ways to finance a college degree. Still looking to bridge the gap? Make sure to compare student loans before making a decision.

Evaluate your degree’s return on investment

Students should also spend time comparing the value of their college, degree, and major to their expected career and salary. 

“I advise my students not to take student loans out for college that will exceed their expected one-year earnings upon graduation,” said Kristine Thorndyke, a teacher and founder of Test Prep Nerds. 

Search for a net price calculator on college websites. Use it to estimate the price tag of each school – including costs like tuition, room and board, and textbooks. Compare this cost with future projections of your career, salary, lifestyle, and debt. Make an informed decision based on this information.

“Even though there are income-driven repayment programs, I still think that this initial rule of thumb is a useful way to judge which college meets your specific price point,” Thorndyke said.

No. 2: How to use credit responsibly

Americans collectively owe more than $1 trillion in credit card debt. In fact, we passed that threshold in 2017. To reverse the trend of overspending, students need to learn early how to handle credit cards responsibly.

Consider a secured credit card

A secured credit card allows a student to build a credit profile the smart way. To open an account, a cardholder must back the credit with a cash deposit. The money is a refundable security deposit, which then becomes the credit limit. A secured credit card allows a cardholder to spend and repay with peace of mind. They’ll never worry about spending more than they can afford to repay.

Another bonus of secured credit cards: The credit card company reports the account information to the major credit bureaus. Each on-time payment can be a positive point on a student’s credit score.

(Best) practice makes perfect

While secured credit cards are easier to get, they’re also often more expensive than standard unsecured credit cards. Regardless of which you choose, be sure to stick to best practices when using credit:

  • Apply for a low-fee, low-interest credit card
  • Keep balances low and never surpass your credit limit
  • Pay your balance off in full or at least make the minimum payment each month
  • Pay on time every time

Well-managed credit will improve your credit profile. A higher credit score equals greater financial opportunities. In fact, creditworthiness will allow for large future expenses, like a mortgage, with the lowest interest rate and best terms.

No. 3: How to live within their means

Living below capacity is a financial tenant that students need to master. It’s a lot easier said than done. 

Taking control of your money ensures that money doesn’t control you. To do so, you need to track where your money is going. 

Identify your needs and wants. Use these two categories of expenses to balance a budget, and then stick with it. This will also aid in identifying negative spending habits in order to readjust expectations.

“If you can manage [living below your means] from day one, you will be able to continuously make progress toward improving your net worth – either by paying off debt or by saving for the future,” said Allison Bishop, a CPA and financial coach. 

A budget will accelerate funding a robust emergency fund, short- and long-term goals, and a secure retirement plan.

Those who learn how to budget with an income and expenses have a huge head start on financial freedom.

“[B]y doing it from the beginning, you never [feel] accustomed to that higher-cost lifestyle that your friends might fall into,” Bishop said.

Bottom Line

Becoming financially free isn’t easy. Students must learn how to avoid and eliminate debt from the get-go if they want to get a jump start on building wealth.

Article contributors
Allison Bishop

Allison Bishop is a certified financial planner and financial coach in Portland, Maine. Bishop blogs about whatever personal finance topics are on her mind. She began her financial coaching practice in 2015, after seeing a need for unbiased personal financial advice during her 20 years as a CPA. She provides individual financial coaching and informational workshops, as well as employer-sponsored financial wellness programming.

Kristine Thorndyke

Kristine Thorndyke is a career educator and founder of Test Prep Nerds, a company founded to help students prep better for less.

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