By Brianna Piche | LSU Student
Students should shun loans and debt, even postpone school until they can pay for it in full, advises Rachel Ramsey Cruze, daughter of financial guru Dave Ramsey.
"I'm all for education, but I'm not for going into debt to get one," Cruze told Louisiana State University students as part of the Financial Literacy Week program. "Our generation assumes you have to have debt."
Student loan debt surpassed credit card debt $867 billion to $704 billion, according to the Federal Reserve Bank of New York. A combination of rising tuition costs and poor financial habits can mean a future of living paycheck-to-paycheck for students swamped with debt payments.
Cruze advised students to pay for school by working a part-time job, attending a public, in-state school, judiciously applying for scholarships, and looking for cash-flow opportunities.
Debt is the greatest roadblock for building wealth, warns Cruze, noting that nine in 10 students carry debt from credit cards, car payments, or student loans. "Think of debt as a thief. It takes away your income."
College students are the primary targets of credit card companies, and Cruze said students should cut up the plastic and build a $500 to $1,000 emergency fund instead.
"You don't need a credit card if there's an emergency. You need cash in the bank."
With the average U.S. monthly car payment at $475, Cruze said students should pay cash for their car, or do without. "The car loan is one of the dumbest pieces of debt you can have. You're borrowing money on something going down in value."
Cruze advised students to avoid debt at all costs and said students can become wealthy by budgeting, paying in cash, intentionally saving money, and donating generously.
It is crucial to create a spending plan and balance income with expenses, Cruze said. "A budget gives you freedom. Every dollar has its place."
People who tend to overspend should use the "envelope system," where an envelope containing cash is allotted to each expense category. Spending is restricted to the envelope.
"Cash is a powerful thing. It's emotional. You feel cash versus plastic."
The brain registers pain when spending in cash, according to a study by Carnegie Mellon, Stanford and MIT. Cruze said people are more likely to spend less when paying in cash, as credit cards "numb the sting" of spending.
Students should not invest until they are debt free, but Cruze advocated saving money for present "wants" such as college and clothing. Debt-free individuals can prepare for the future by investing in growth stock mutual funds, maxing out a Roth IRA, and taking advantage of employer's matches of 401k and 403b.
If money controls, warned Cruze, a lifetime of being broke ensues.