4 common money mistakes college students make

For many people, their first taste of managing their own money comes when they begin college, especially if they live on campus away from family. College students will begin to make many of their own decisions when it comes to how they'll earn and spend their money.

And while many students are likely still figuring out how to make their personal finances personal, those who never received formal financial education may be apt to make a few near-sighted choices with dismal consequences in the long-run.

Below, Select dives into a few common financial mistakes college students tend to make along with some suggestions on how to avoid them.

The average borrower between the ages of 25 and 34 has $33,817.56 in student loan debt. This number is just under the average student loan balance for borrowers of all ages, which is $39,351. Most student loans are federal student loans but there are also private loan options to help students bridge the gap between what is offered to them from the government and what is needed to cover the remaining costs of college.

However, sometimes students qualify for more funding than they may actually need for the school year. In fact, a 2013 feature from U.S. News discussed the experiences of young adults who received more money than they needed and used school loans to fund lavish lifestyles while they attended college. In short, they ended up with debt balances that seemed impossible to repay.

It can be tempting to use the excess money to make non-education related purchases, but students should avoid seeing extra loan money as a source of income. The money will need to be repaid and every dollar you borrow accrues interest.

Over time, the interest charges add up so you'll actually end up owing significantly more than you initially borrowed. Be sure to only accept the loan amount you need to cover essential education-related costs, like tuition, dorm expenses and textbooks.

When you accept any type of loan, it's always important to understand the repayment terms. Personal loans, for example, come with a fixed repayment period, usually up to seven years. But before you graduate and get your degree, it's important to make sure you understand how much money you owe, when your first payment is due, how much interest you're being charged and what your monthly payment will be.

If you aren't aware of this information, your repayment period could begin without you realizing it and you could accidentally miss a payment. This could lower your credit score and if you habitually miss payments — even accidentally — you could wind up defaulting on your loans.

If you take out federal student loans, you'll usually have a six-month grace period after graduation before your first payment is due. There are also a few different repayment plans that you may qualify for as a federal student loan borrower.

The income-driven repayment plan, for example, is based on how much you earn each month and if your income is low enough one month, you may not be required to make a payment at that time. This plan is designed to help alleviate pressure on individuals who are in a financially strenuous situation.

But if you took out private student loans, you'll have to discuss the repayment terms with the lender since many of the rules around federal loans won't apply to you.

According to a recent TransUnion report, Americans on average have less credit card debt in 2021 than they did in 2020. However, Gen Z'ers (many of whom are college-aged) were the only generation to see a slight uptick in their credit card debt balances in 2021. Their average balance rose slightly, from $1,522 to $1,616.

Credit cards can be a valuable financial tool to help you improve your credit score or to allow for flexible payment options. Plus, many cards offer valuable rewards, like the Chase Sapphire Preferred® Card, which currently offers 60,000 bonus points if you spend $4,000 within the first three months of opening (equivalent to $750 toward travel when you redeem through Chase Ultimate Rewards®).

However, many people — whether they're adults or students — make credit card purchases without a plan for how they will pay off their balances. In fact, a 2019 survey found that only 51% of students plan to pay off their credit card balances in full.

When you carry a balance, you're accruing interest, which means you'll have an even larger balance to repay. And the larger your balance, the longer it may take you to pay off your credit card.

Plus, paying your balance in full has some advantages like improving your credit score. One strategy for paying down credit card debt faster is to use a credit card with an introductory 0% APR period or interest-free balance transfer offer — like the U.S. Bank Visa® Platinum Card, which lets you transfer your balance and make interest-free payments for the first 18 billing cycles (after, 18.74% - 29.74% variable APR). Balances must be transferred within 60 days from account opening.

Finally, consider using a student credit card because they typically offer periods where you can make purchases and pay your balance interest-free, and the interest rate is usually lower than that of non-student credit cards. Plus, some cards are easier to get approved for if you have little to no credit history.

The Discover it® Student Cash Back, for example, charges 0% intro APR for the first six months on purchases (after, 18.24% - 27.24% variable), has no annual fee and lets you enroll every quarter to earn 5% cash back on rotating categories. (such as Amazon.com, gas stations or restaurants), on up to a $1,500 maximum each quarter (then 1%) when you activate. All other purchases earn unlimited 1% cash back automatically.

This way, students can get rewarded even for spending money on things they need and potentially save on interest.

When you're a student, it can be easy to believe that you don't have to learn how to manage money if you don't even have much money to begin with. However, starting from somewhere is always better than not starting at all — and students can definitely start managing whatever amount they do have.

Students who have jobs, be it part-time work on campus or a paid internship, can learn how to manage money by saving a portion of every paycheck in a high-yield savings account or even investing it in an index fund. Ally Online Savings Account and Marcus by Goldman Sachs High Yield Online Savings both offer higher than average APYs so account holders can also earn some interest on their balance, and in the process grow their savings a little quicker.

And anyone with some money can get into the habit of tracking their spending so they know exactly where they spend the most and where they spend the least. Doing this early on can help lay the foundation for mindful spending later in adulthood.

It's important to start building healthy financial habits as early as possible, and for many people, that could mean practicing money management while they're still in college. It's easy to think that because you're in college and don't earn enough of your own money yet that you don't need to think about personal finance.

Despite this, students are still forced to make many financial decisions through student loans, credit cards and the opportunity to save earnings from campus jobs or internships. And while this might feel overwhelming, building small, healthy habits is better than ignoring money management altogether.

For rates and fees of the Discover it® Student Cash Back , click here.