Graduating from college is an accomplishment that you will always treasure, an accomplishment that will stay with you for the rest of your life. But somehow, there’s something bittersweet about the experience.
You’ve just received your hard-earned diploma, but it’s come at a hefty price. If you’re like most people, you had to take out loans to pay for your degree, so now you’re in a world of debt.
The following tips will help you manage the debt and take control of your financial future:
1. Create a Budget
I used to cringe at this word, no joke. When my parents told me that I needed to make a budget and stick with it, I would put it off. You know why? Because I never wanted to take a hard look at how much money I owed in student loans. I wanted to continue living in the student bubble I had created for myself, and not enter the real world.
Take it from me. Skip the shenanigans of putting it off and create the budget early. Don’t wait until you’ve graduated from college to do it; create the budget as early in life as is reasonably possible. Set restrictions for yourself and stick with them. It might seem like a drag because you’ll be slightly limited, but it will pay dividends in the long run. I haven’t reached this point yet, but I know how good it will feel when I make that last student loan payment.
2. Maintain the Top Ramen Mentality
I’m not suggesting that you attempt to subsist on Top Ramen for the rest of your life; I’m merely recommending the mentality. Even though you’ve graduated, pretend that you haven’t when it comes to entertainment, food, and costs of that ilk. Yes, food is a basic necessity of life, but you can definitely find good food at a reasonable price.
Continue cooking at home instead of going out to eat; limit yourself to one movie in the theater a month and the rest at home; keep the happy hours and drinks to a limit as well…that can add up fast.
Another big expense that doesn’t have to be so big is coffee. Brew your own instead of going to Starbucks for a cup of coffee (or even more expensive, a latte). This tip goes hand in hand with creating a budget. Consider your income and seriously determine how much you can afford to treat yourself AND still have money left over to save or put toward the student loan debt.
3. Use Public Service or Other Positions to Reduce Debt
Many teachers will obtain their degrees and find positions in a low-income, urban public school that will forgive a portion of their student loans. Depending on the state and district, if you work in the school a certain number of years, they will forgive some or all of the debt associated with obtaining your degree. It’s a great incentive to put in your time, help some underprivileged students, and enrich your life a little more. Some districts even give you a bonus for working in their schools; you just have to inquire about them.
You may also want to look into the Public Service Loan Forgiveness Program for additional information on paying off your student loans more quickly. This program greatly benefits those entering the Peace Corps and Americorps.
4. Make Higher Interest Loans a Priority
Well, it makes sense, right? The higher the interest, the more you’ll have to pay back, so you may as well pay the minimum on your lower interest loans and the maximum your budget can handle toward your higher loans.
Many graduates also have credit card debt from being in school. You’ll probably notice that those interest rates are among the highest. As a side note-many college students get roped into high APR credit cards their first year of school. This is typically what they are approved for because very few have established a credit history. If you have not had the opportunity to get suckered into these rates, good for you. Otherwise, make your higher interest credit cards a priority to pay off.
5. Be Aware of Your Credit
Typically, you want to keep credit card usage at 30-50% of your credit line. Meaning, don’t max out those cards! If you have a credit line of $5,000, max your spending limit at the $2,500 mark. The higher your line of credit, the higher your liability, and the higher the chance of lowering your credit score (unless of course you’re paying it off completely each month). Many students, however, get into trouble early by spending more than they have, maxing out their cards, and as a result, lowering their credit score. Be wary!
Also, when taking a hard look at your finances in an effort to streamline, consolidate, lower your expenses, etc., it may be very tempting to close your credit card accounts. I would talk with a financial counselor about this prior to doing so. Sometimes, keeping certain cards (i.e. the oldest accounts), would be in your best interest to maintain that established credit history.
6. Lower and/or Consolidate Interest Rates
You may be eligible to lower your student loan interest rates with the new consolidation program. If eligible, you could lower your consolidated loans by .25%, and another .25% if you’re enrolled in automatic payments. Check into this to see if you can take advantage of the program.
If you’re not eligible, you may try to consolidate your loans the old fashioned way. Find out what your loan interest rates are to determine if it would be cost efficient to consolidate.
You may find that your interest rates fall between 4-8% on multiple loans, however you can get a fixed rate of 5% on all loans. Well, that might be a significant savings if only one of your loans is on the lower end of the spectrum and the rest are closer to 8%. Again, you will probably have a rate reduction of .25% if you enroll in automatic payments.
If you have any other tips that would help recent graduates take control of their financial affairs, please leave them in the comments below!