The debt trap students need to avoid

Managing your finances can be difficult, but a few quality tips and tricks can go a long way. Each week we'll be featuring a new tip on anything from daily spending to retirement planning from a member of the Finance Collective. This week's tip comes from Investment Conversations and is wise words for students who tend to spend too much and work themselves deeper into debt:

"Don't fall into the debt trap:

You know you're in a debt trap when your monthly income cannot cover your expenses as well as the payments on your debt. This debt could be in the form of credit card, college, auto loan debt etc. Some easy ways for students to fall into debt traps include: not paying off bills on time thereby incurring penalties; paying only the monthly minimum; and overspending. Most students tend to gravitate towards using credit cards to finance their lives, especially because credit cards are heavily marketed towards students. Unfortunately, what most students don't realize is that credit card interest rates are generally between 19-22%. This means that if you do not pay off your $1,000 credit card loan at the end of the month, your credit card debt could be up to $1,220 (including any other late charges/ fees). If you're unable to pay for 4 months this original debt of $1,000 grows to $2,215 – TWICE the original balance!

The easiest way to prevent yourself from falling into the debt-trap is by living within or below your means (that is, not overspending). In addition, it is necessary to do research before getting credit cards (or signing any contract to take on loan/ debt) so that you really understand how it works. As a student, you must learn to treat your credit card with respect." -Investment Conversations

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