It’s high school graduation season, an exciting time for those receiving their diplomas and their families.
Most of the graduates probably have an idea of what they plan to do with the next stage of their life, either going to college or straight to work.
I used to think that forgoing college was a huge mistake. Not as much anymore, provided the person who passes up on higher education is pursuing a marketable skill. A skilled carpenter, plumber or electrician will never have a shortage of work, and many of them earn more than a lot of college graduates.
But for those who are going to college, here is my No. 1 piece of advice: Avoid as much college debt as you can.
President Biden and Democrats in Congress are currently talking about forgiving some or all of the college debt that former students have accumulated. Even if that happens, don’t count on getting the same consideration.
Students who borrow for college are graduating today with an average debt of $30,000. That’s a huge chain around your neck when you get out of school.
It limits many of your other future choices: how much rent you can afford, how much car you can afford, even what job you can afford.
College debt can also put pressure on you to be more practical with your choice of a major, pushing you toward studying a subject that may not excite you but which you believe has a better chance of landing you a job that can help retire all that debt you’ve accumulated.
You’ll spend 40 or more years of your life working once you are done with school. Most people wind up in jobs they don’t like all that much, but they stay with them because they provide more income than a job they might rather do. The more debt you have, the more likely that will happen to you.
The thing is, not everyone racks up debt in college. A third of college graduates get out with none, and they don’t all come from wealthy families. You want to be in that third.
How do you do it?
Ideally, you did well enough in high school to earn some scholarship or grant money. But even if you didn’t, there are things you can do to avoid debt.
First, get done in four years or less. You might not be in a hurry to get out of college — it can be some of the best years of your life — but a fifth year adds 25% more in expense.
Second, get a part-time job during the school year and preferably a full-time one while you’re on summer break. You might rather be waited on than be the waiter, but the former is spending money while the latter is making it.
You are fortunate to be entering college when the demand for workers exceeds the supply. That means there are lots of employers willing to give you a job, even if you have no previous experience. They also probably will pay you more than they would have paid college students just a couple of years ago. Take advantage of that opportunity.
You might think that working will hurt your studies. It shouldn’t. A part-time job will force you to manage your time better, a great skill to develop. Less free time produces fewer distractions.
Working also will put some money in your pocket, for which you won’t have to beg your parents or borrow. And it will look good on your resumé when you begin applying for your first job out of college. Employers lean toward applicants who have demonstrated a strong work ethic. The work doesn’t even have to be in your eventual career field. The employer just wants to know whether you have a history of holding down a job.
Third, live within your means. You don’t have to have the latest smartphone or the nicest wardrobe right now. There’s plenty of time for that when you can better afford the luxuries.
Some in your generation have grown up expecting instant gratification. They’ve been led to believe that if they want something, they should not have to wait for it. That’s a trap, setting them up for a lot of disappointment or a lot of debt.
The credit card companies know this, and if they haven’t already tried to sign you up, they soon will. Throw those applications away.
For all their freebies or cash-back promotions, the average credit card charges 15% to 20% interest. Compounded over time on unpaid balances, double-digit interest rates will put you in a hole you may never dig out of short of bankruptcy.
There are some transactions for which using a credit card is preferable to a debit card: airline reservations, hotel rooms and online purchases, for example. But the temptation to use a credit card for purchases you can’t afford outweighs those benefits. Wait to get a credit card until you have the income to pay back the balance in full every month.
Some debt is unavoidable. Not many people have the savings to pay cash for a car or a home. But keeping debt to a manageable level can save a lot of stress. The pattern for how you manage yours begins now.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
