How to Manage Debt: 10 Tips for Students

by Katie Kelsall. Katie is a financial aid officer at Harvard Extension School.

Even if you are not borrowing student loans, you may have debt from credit cards, car loans, or a mortgage. Managing your debt responsibly is key not only to your financial health but also your mental health.

By taking control of your finances, you can minimize stress and be better prepared for the future. Here’s how to do it.

1. Create a budget.

First, identify your monthly sources of income. Next, list all of your monthly expenses, including housing, utilities, transportation, healthcare, and any debt. Don’t forget to add some room for fun. Then identify areas where you can cut costs.

Need help getting started? Use a budget worksheet or a free online budgeting website like

2. Reduce spending.

401(K) 2013 via flickr

There are many simple ways to reduce spending. Make your own coffee, take public transportation, or rent textbooks through and Amazon. Consider ditching cable for cheaper alternatives like Netflix or Hulu.

Don’t forget about student discounts. Next time you are shopping, ask the cashier if the store offers one. Students at Harvard Extension School are eligible for computer discounts; log into online services to see what’s available. Or sign up for SALT Money—a free money management tool for students—to take advantage of promotions offered only to members (join our SALT Harvard Extension portal).

3. Borrow the minimum.

Keep in mind that borrowing loans or paying with credit cards means that you are using your future income to pay for today’s expenses.

If you have to use student loans to pay for school, be sure to borrow only the minimum you need. (See my 10 Tips for Borrowing Education Loans post).

4. Understand loan and credit card terms.

If you are planning to sign up for a new credit card or borrow a private loan, shop around to find the lowest interest rate. Also, be sure to understand the repayment terms, including any penalties you may incur for late payment.

5. Keep track of your loans.

You can access your federal student loan record online. Also, a SALT account enables you to track all your loans in the same place.

Always update your contact information with lenders so you receive important communications and bills. Consider setting up an online account so that you can pay electronically or set up automatic deductions (your lender may offer an interest discount for auto repayment).

6. Use excess aid or tax refunds wisely.

If you are receiving financial aid that exceeds your tuition and fees, plan how you will manage those funds over the course of the semester. You may want to open a separate savings or checking account that you do not regularly use so that you are not tempted to overspend.

Likewise, if you are receiving a tax refund this spring, plan to use it to pay off any outstanding debt, or put it into savings.

7. Pay off your credit card each month.

Using credit cards wisely can be good for your credit score. But it’s best to pay your balance each month. If you’re already carrying a balance, try to pay more than the minimum due each month.

8. Develop good credit.

It’s okay to have debt as long as you can stay in control of it. Make payments on time or notify your lenders or credit holders right away if you are unable pay. It may feel scary to call, but avoiding your debt can lead to delinquency and default, which can prevent you from achieving future goals, such as buying a house or car. Don’t forget, up to three times a year you can check your credit report for free.

9. Use cash.

Studies show that there is a psychological difference between paying with cash or credit card. It’s harder to spend your cash, because you have to see and think more about the money you’re spending.

As an exercise, put your credit cards in the freezer and take out the amount of cash you think you will spend for a week. Then, only use cash to make payment for the next seven days. If you run out of money before the week is over, you know that you need to reevaluate your budget.

10. Establish a savings plan.

It’s best to put 10 percent of your paycheck in a savings account. If you can’t afford that, anything is better than nothing. The easiest way to save is to forget that you’re doing it. See if you can have a portion of your paycheck automatically deposited in a separate savings account that you don’t touch. Soon enough, money will start piling up and you won’t be tempted to use it. Use a savings calculator.

More information and tools for managing your finances