September 2, 2016 3:02 pm

Back to school: Tips for students to avoid long-term debt, save for the future

Half of young Canadians admit they're unprepared to manage their finances heading into the school year.

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Going away for college or university can be an expensive experience.

Tuition is one thing, but books, school supplies, rent, food and bills add up really fast.

To help ease the financial transition, using borrowed money in the form of student credit cards is often a choice – a short-term solution with potentially long-term repercussions.

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In fact, one in five young Canadians will first reach for credit cards when making a purchase, according to the Financial Consumer Agency of Canada. These habits have led to credit card debt for 60 per cent of those ages 18 to 29.

READ MORE: How to combat the far-reaching consequences of student debt

For Craig Fryzuk, a licensed insolvency trustee with BDO Canada, getting a good grasp on financial literacy skills when you’re young is essential to curbing crippling debt in the future. Here are some of his tips.

Debt tip #1: Learn to shop around

When it comes to shopping for school supplies, finding a place to live or even choosing the best student credit card that fits your needs, don’t settle on the first thing that comes along.

Look at what’s being offered and weigh your options. The best way to do this and save time, Fryzuk says, is shop online.

“The opportunity is there for students to utilize online shopping,” he says. “I think there’s a lot of great deals to be had but of course there’s pitfalls of that too and you have to not get addicted.”

So take advantage of student deals and meal plans, Fryzuk adds.

Some universities have a list of meal plan options for students to choose from that helps save money on food throughout the year. Among them is Western University which offers a Tax Exempt Meal Plan that saves students 13 per cent or a Flex Plan that saves five per cent.

These savings may prove to be helpful as food prices continue to rise. According to the University of Guelph Food Institute, the average household is expected to shell out an additional $345 on groceries than in 2015.

If a student decides to get a credit card, they should find one they can reap some rewards from. For example, if they plan on travelling home quite often, maybe pick a card that awards travel points.

Debt tip #2: Needs vs. wants

A recent poll by Capital One Canada found that 50 per cent of 18 to 25 year-olds are unprepared to manage their finances as they head back to college or university.

“That tells me that we have got a lot of work to do,” says Fryzuk. “As students there are going to be a lot of wants and a lot of stuff going on, but you have to take care of the basic needs first like your food, shelter, clothing – not necessarily the best or designer clothing – and tuition. The wants are going to be all the events that are going on, concerts, spring break trips, etc.”

A 2015 BMO study shows that more than one-third of Canadians say they’ve developed bad spending and saving habits that are negatively affecting their finances. However, they’re also not willing to give up the things they enjoy to improve their financial standing.

But, Fryzuk says, if students plan correctly and follow a budget then they have the potential to set themselves up to indulge in some of those wants.

The key is to avoid spending more than you make, but still budget for a little bit of fun.

Fryzuk advises students to look for budget-planning resources like budgeting worksheets. A great place to start is on the Financial Consumer Agency of Canada website.

READ MORE: Registered Education Savings Plans: How to save for your child’s education

Many Canadian colleges and universities also offer financial services that are designed to assist students through their post-secondary journey, says Fryzuk, and should be a service students take advantage of.

The Student Financial Services at York University, for example, has councillors on hand to help students navigate through financial planning, financial aid, employment and taxes.

Debt tip #3: Be wise with your credit card

Most student credit cards today come attached with a high interest rate of around 20 per cent. But if a payment is missed or the cardholder falls behind in payments, the interest rates climb even higher.

“If you’re a day late with a payment the interest rate will go up because often that’s built into the contract,” says Fryzuk. “Even if you miss it once or twice on a card the interest rate could go up to 26 or 27 per cent.”

A way to avoid missing a payment, Fryzuk says, is to arrange automatic withdrawals from your debit account and set it at the credit card’s minimum required payment.

Fryzuk also advises students not spend over their credit card limit.

READ MORE: Where to find the cheapest school supplies

“Some banks will allow you to do that, but the credit card will charge you about $25 if you do it. A lot of people don’t know this,” he says.

Foremost, students shouldn’t use their credit card to withdraw cash. When they do, they’re missing out on the benefits and rewards that come along with the credit card and are charged high fees.

“They’ll charge you a minimum of around 1 per cent or $7.50 when you [withdraw money],” says Fryzuk. “It becomes really expensive.”

Debt tip #4: Stay on top of things

For Kryzuk, being proactive is important when it comes to smart money management.

“I always recommend checking the balance on your credit card and bank account weekly,” he says. “It’s a great habit to get into.”

Kryzuk suggests downloading your bank institution’s app to your smartphone. That way, he says, you’ll always know what’s in your bank account rather than be surprised at the cash when the cashier tells you your card has been declined.

Currently, 31 per cent of Canadians use mobile banking while 26 per cent say their use of mobile banking is increasing, according to the Banking Association of Canada.

Lastly, it’s OK to save for a rainy day even when you’re budgeting and paying bills, says Fryzuk.

“I always say to set aside a FOMO fund – a fear of missing out fund,” he says. “It’s OK to put a little aside each month. That way if something spontaneous comes up then you’ve got this money built up and you can do [the activity] guilt-free and have a great time.”

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Graphics provided by James Waters/Global News

© 2016 Global News, a division of Corus Entertainment Inc.

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