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I’m a High School Student. How Do I Stay Out of Debt? – Eliz

“Dear Steve,

I’m a sophmore in High School in Idaho USA , I have a job that i work at least 6 hours on friday and saturday at minimum wage (7.25 in Idaho I believe) and I have been saving 100 dollars each paycheck that I recieve every 2 weeks in savings in my bank account. I have a debit card and almost always leave less than 100 dollars in the checking account so I don’t overspend- unless I make a really big purchase which is very rare. I have a permit and no car.

I have 2 1/2 years until I am 18 and can legally leave my parents household. I would like to go to college and have a apt., car, cellphone, internet, computer, etc. My biggest issue is I want to stay debt free throughout all of this and afterwards. I would really like advice on how to do that. I would like to get a car right now, but it costs alot of money so I don’t know if I should wait, and how long I should wait if I do. So what is a good game plan to make these goals happen?

Thanks for your help!

Dear Eliz,

Thank you for asking me your question.

The answer is relatively simple. You just make sure you do not obligate yourself to future payments you can’t afford. Don’t spend more than you make. Live within your income and make sure you can save money each and every payday.

In an idyllic world you’d save in advance for anything you plan to spend. Want to buy a car, save the entire purchase price in advance and then pay cash. Want to buy a house some day, then the same rule applies.

But that being said, the reality is that at some point in your life you may want to get a great deal on a loan and finance a car purchase or get a mortgage. In that case you’ll need a good credit score and low debt to qualify for the best rates.

Starting out from no credit can be tough. But my advice is when you turn 18, skip all the hype offers you will see and go for a couple of secured credit cards that report to the credit bureaus to build credit.

Also without good credit it makes it tougher to be approved for things like an apartment, cell phone, and utilities.

Just keep in mind that a debit card not only does not build credit, but it is less safe to use than a credit card or a secured card. See Beware of Your Debit Card. Credit Cards are Safer.

More on that below.

Boosting Your Credit Score With Good Credit Using a Secured Card

Using the report card analogy, if you wanted to bring up your GPA you would need to earn some better grades to do it. It is the same with your credit report. If you want to bring your score up you need to start having new and good credit reported about you.

The best way to do this is to get and use a secured credit card. In fact get two different ones. I put together a section of the site that lists reviews for secured cards. Look at the secured cards here.

The advantage of getting a secured card is that you will get the credit card and not get a rejection on your credit report that will further hurt your credit. A rejection can be easily spotted by looking at the inquiry section of your credit report and seeing there is not a corresponding card opened. And with your current bad credit, if you applied for an unsecured card, you would get rejected.

The reason you will get the secured credit card on the first attempt is because you need to put up a deposit with the bank that is equal to your credit limit. The deposit will earn you interest and in the unfortunate event you were unable to pay your card and defaulted, the bank would use your deposit to pay the debt.

When looking for a secured card you want one that will report to all three credit bureaus. This is key. We need your new good payment history reported.

Now when I say use the card, you do not need to carry a balance from month to month. Just use the card for regular purchases and pay the card off either immediately or at the end of the month.

Also, if you get a secured card with a $300 limit, never have more than 35% of the limit on the card. Even though your initial limits may be low, you don’t want to max them out. You can always increase your limits by increasing your deposits. You can increase your credit limit by increasing your deposit with the card company.

I suggest getting more than one card so you can get as much good juice flowing to your credit report without having too many credit cards open. You could actually go with three if you wanted to, but no more than that.

Just make sure the card will report to the credit bureaus.

But, the most dangerous debt on the horizon for you is student loan debt. Unlike other debt which may be eliminated if you run into trouble, student loan debt generally can’t. You can go to college but start at your local community college which typically has the most affordable tuition rates.

Final Word

Debt is nothing more than a pledge of future labor to have something today. When you evaluate purchases think about them in terms of working hours. A $20,000 car is really 2,000+ hours of work if you get paid more than $10 an hour. And that doesn’t even include insurance and gas expenses either.

To finance that car you need to be aware you are promising 2,000 hours of work over the next five years and that can leave you stuck in a job you hate.

Debt is time. Time is money.

For more on this, check to see if your local library has a copy of “Your Money or Your Life.” It’s a great book.

Please post your responses and follow-up messages to me on this in the comments section below.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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