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Financial Literacy


Financial Aid

Learning the basics of budgeting is an important part of college.

This page provides tips to help you be financially savvy and jump-start your future from day one.


  Taking Charge of Credit Cards

  Budgeting and Good Record-Keeping

  Basics of Loan Repayment




Taking Charge of Credit Cards


If you haven't started already, you will probably start building your credit history while you are in college. Your credit history begins as soon as you take out a loan. The loan can be in many forms: a student loan, a car loan, or a credit card. Your timeliness in paying back your loan is reflected in your credit score—a grade that measures how reliable you are with paying back your debt.

Understanding the Credit Score

The credit score takes into account your repayment track record, the amount of debt you owe, your history with debt, how often you apply for credit, and the types of credit you use. It helps lenders determine how risky it is to lend money to you, which can influence your interest rate and whether or not you qualify for certain types of loans.

When does your credit score matter? Lenders may look at your credit score every time you do one of the following:

  • Buy a car or a home
  • Set up phone or utilities
  • Rent an apartment
  • Apply for a job

Understanding your interest rate

The interest rate is your cost for borrowing. Paying your bill in full by the payment deadline results in a cost savings for you, the borrower, because you will not be charged any interest. By deferring full payment, however, you will begin to incur interest charges based on a percentage of your overdue monthly balance (this percentage is your set interest rate). Regardless of your cost of borrowing, you will always be required to make a minimum monthly payment.

Controlling your costs

The amount you will pay in interest will be determined by two factors: the assigned value of your rate and the amount of your overdue bill. These factors suggest:

  • You should be aware of the rate value assigned to you; this helps you know what percentage of your bill you will be paying in interest costs before you spend; and
  • You should be aware of how much you are spending; the more you owe, the more you will pay in interest costs, and therefore, you should only spend what you know you can pay back, including interest.

Securing your future

Your credit rating is important to your future. Use your credit sparingly, and keep your spending within your credit limit. If you encounter financial difficulty, talk to your lender and work out a payment plan. Then, pay off your balance in a timely manner so that you avoid financial penalties. Only borrow what you need.

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Budgeting and Good Record-Keeping


Planning a budget helps you spend only the money that you have—it helps you make sure that your expenses are not greater than your income. Smart budgeting means keeping track of what you spend as well as what you earn. To start, you'll need to list your monthly expenses—and be honest about what you're using your money for.

Don't forget the following categories:

  • Rent
  • Cable/Internet
  • Phone
  • Car payment
  • Insurance
  • Fuel/Parking/Repairs
  • Groceries
  • Dining Out
  • Tuition
  • Books
  • Medical expenses
  • Entertainment
  • Savings

Keep track of what you spend for one month. You'll be surprised how much entertainment costs. One $4 latte per day ends up costing $20 per week and $80 per month!

Meeting your goals

Once you've tracked your expenses, prioritize them and take notes on where you can cut back. For example, share your living space with a roommate to cut rent expenses in half. Make a list before going grocery shopping to help avoid impulse buys. Talk with your parents about joining in with car insurance or cell phone plans to reduce monthly premiums. Buy used textbooks, and use public transportation if available. There are many ways to cut costs and make college more affordable. Make a plan to balance your budget and start saving.

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The Basics of Loan Repayment


How to Borrow Less in the Long Run

Interest expenses can cause loans to become more expensive over time. A small change in the initial principle amount of the loan can result in a large difference in the total cost of the loan.

For example, a student borrows $3,000 at 6.8% interest in a Federal Unsubsidized Stafford Loan. If he pays $50 per month after graduation, his total cost becomes $3,676 because of the interest costs. If he reduces the amount borrowed to $2,700, the total cost drops to $3,192. The small adjustment in the principle makes a big difference over time.

Avoiding Interest Costs

One way to avoid costly interest payments is to use work income to supplement loan income. If the student mentioned above worked a part-time job over the summer and saved $1,500, he would only need to borrow $1,500 to earn the $3,000 he needs. A $1,500 loan at 6.8% costs $1,649. This student saved $149 by saving his work income instead of borrowing a loan.

Subsidized loans are also the most inexpensive type of student loan. When shopping for loan options, choose subsidized loans over unsubsidized because it means that the lender is subsidizing interest payments. In other words, during deferment, the lender pays part of the interest on the borrower's behalf. Less interest charges accrue, and the total cost of the loan is lower.

Calculators

Loan calculators are useful for comparing repayment plans and interest rate options. The following links are handy tools for student loan borrowers:

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Student Financial Aid
220 North 7th Street
150 Tirey Hall
Indiana State University
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