No, I’m not talking about getting in deep with a bookie or leaving thousands in your credit card balance to pay off next month (but good luck to those who went down that path). I am talking about low or even interest-free debt - - the debt that will help you buy a house in 10 years and get that shiny new car in 2025. This debt is actively available to you as a student when you apply for financial aid and is also easily generated each month when you know how to manage your personal finances.
Student Loans
54% of those in college take out student loans. They are also responsible for $1.6 trillion of debt in the United States alone. You would think that it’s a better idea to avoid as much of them as possible, but if used in moderation it can be beneficial to both your bank account and your credit score.
1. Subsidized federal loans are the gold standard.
- Even if you have the money to pay for your tuition, you should still take these if they are available. They can be a godsend.
- Why? It's interest-free money until you graduate plus a little extra time afterwards to get you situated post graduation. This means you could either take the money you would have spent on tuition or place it into low-risk investment and funds that will compound their value for a few years.
- If you didn’t have the money, then it will give you time to get some hours in a part-time job or side hustle to help pay for the major expense of education.
2. Unsubsidized federal loans are the next best thing
- Typically, these loans have low-interest rates that will be less than what you would make if you invested the money you would have otherwise used.
- If you don’t have that money in savings, then it is a great option to give you more time to work and will be very feasible for you to pay off shortly after graduation.
3. Private loans
- I would only recommend that you take these loans out of necessity because they have higher interest rates that will make it harder to pay off after graduation.
- If the degree you are planning on getting pays very well, then it would still be a very smart choice compared to not getting a college education.
Responsible Low Limit Credit Card Usage
It’s an easy in concept to keep a low limit on a credit card. It’s a bit more challenging in practice because these babies have a brutal interest rate that can be harmful to the exact reason why you would be getting them in the first place.
The Keyword is Responsible
If you see the possibility of yourself doing something like buying a $100 signed copy of an album you love on vinyl at 2:37am on a Friday night (or Saturday morning) while you are not mentally in a decision-making state (and you don’t even have a record player), then stay as far away from this one as you can.
If you are however the person that checks their bank account every other day and is familiar with the ins and outs of proper budgeting, then this is a great way to boost your credit while generating rewards available to you by your creditor. Just make sure you ALWAYS pay the debt off by the end of the fiscal month.
It’s Not All About the Money
- A solid credit score will help you with any major purchase down the line whether it be personal or for business.
- This may bring the opportunity for better interest rates and also better housing situations for yourself years ahead.
- Without these loans, you won’t have much of a credit history, so one mistake could end up hurting you significantly in the future.
End Thoughts
Responsible Debt Good – Irresponsible Debt Bad
It really is that simple, yet while in theory, it may sound easy, in practice it can lead to years’ worth of payments. So, be careful, fully understand what you are signing up for, and make good financial decisions.
Nicholas Sanborn
Student Blogger and Former Intern
Nicholas Sanborn is a Student Blogger and Intern for Quatromoney in addition to working for Johnston & Murphy as a Sales Associate. He provides articles, studies webpage analytics and compiles industry data. Nicholas is an Economics Major and is currently studying at the University of Vermont.
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