How to avoid hauling student debt around for the rest of your life

By Lacy Broberg

October 20, 2008 | Who cares if you're in debt, right? After college when you are bringing in the big money with your new career you'll pay off all of your credit cards and make up for what you've spent.

Unfortunately, this is the outlook the majority of college students have on their current financial status. What students don't realize is that once they get in debt, it is likely to follow them the rest of their lives.

As freshmen students start school away from home, away from parents, they can do whatever they want. This means parties, sporting events, concerts, going out to eat, beer, clothes, school supplies, etc that lead to spending a lot of money without even realizing it. Students may be receiving money through scholarships, financial aid, parents, summer savings, a current job, and/or nonstop credit cards to fund these purchases.

It is so easy to rack up debt for anyone and a lot of people use college as an excuse because later on they will have a career that will pay for it all. Denise Gish, customer service manager at Zions Bank, said, "Really watch the amount of debt you take out. Don't get more in student loans than you have to."

Sooner or later all of these expenses start to add up and before you know it you are in debt. David Bach, the bestselling author of The automatic Millionaire teaches a system called "The Latte Factor." This system is based on the amounts of money people could save if they give up just $5 a day. For example if a college student gets a latte every morning on their way to class it equals $5 per day, $150 per month, $1,260 per year. If that money were to be invested and put into an account with a 10 percent return, you would be left with $30,727.00 after just 10 years. Doesn't it seem a little crazy to waste $30,727.00 on lattes? This example is just one small thing that a lot of college students might waste their money on every single day. Find out your latte factor here.

College students continue to build debt they will carry forever through small purchases like these every single day. Alena Johnson, a family finance lecturer at Utah State University said, "Be wise. Don't let the moment catch you off guard so you are spending money you don't really have. This is easy to do with friends."

Students need to start with a plan and get on a budget so you at least know where your money is going. Nearly 75 percent of college students don't live on a budget at all. It's no wonder at the end of the month people always wonder where all of their money went. If you don't keep track of where your money is going before you spend it, how do you ever expect to build your wealth for the future?

Gish suggested some things to help keep track of money. Minor things would include using a check register, setting up the proper savings or IRA account for personal savings goals, etc. Often looking at these "minor" activities is a good way to start building a solid base to a good financial future.

There are several types and methods of budgeting. One way is to list all of your expenses and all of your income to see how they compare and where you can make changes. A great place to do this is at Wesabe . This website securely links to your bank account and tracks every penny you spend as well as every penny you receive. You can look at monthly spending and income reports. On Wesabe you can set personal goals and get support and feedback from people with similar goals.

Another way to budget is used with the idea of simply just "paying yourself first" This comes from David Bach, whose simple method is to automatically put certain amounts of your paycheck into your savings account. This way you can save money for yourself first, and whatever money you have left you can spend as you please.

There are many online tools that can be used in assisting people with a budget. Yahoo Finance is a great resource to find how-to guides for budgeting, getting out of debt, and saving for the future. This Web site also provides answers to all kinds of questions and provides budgeting and savings calculators.

Many people think of budgets as boring and too complicated to deal with on top of all of the other stresses that come along with college. It really is simpler than you think and you'll be grateful later on in life.

A college degree isn't going to automatically solve or save you from your money problems and debt. Make a plan now to learn how to manage your money and set goals so that you can reap the benefits without being in debt later.

"In 1953 the graduating class of Yale University was surveyed and it turned out that only 3 percent of the graduates had formulated financial goals for their lives and written detailed plans to achieve those goals. In 1973, 20 years later, those same people were found and re-surveyed. It turned out that only 3 percent, who left college with goals and plans to reach those goals, were worth more financially than the other 97 percent of their classmates combined."

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