Graduating college is an exciting time. You put in a lot of time and work to reach this milestone. However, you’re now faced with preparing to really be on your own. You have student loans to worry about, as well as paying for your own place and balancing your own budget. Take a deep breath. You survived college. You’ll survive this too.
After graduation, you’ll enter a six-month grace period before you begin repayment. Unfortunately, students often forget about their loans during this period. In fact, the majority of missed payments occur with the very first payment. To help you remember, add a reminder to your calendar.
Getting your loans organized is also helpful. Compile a list of all of your loans, including the loan ID number, the current loan balance, the interest rate, and the date the first payment is due, as well as the name, web address, and contact information for the lender. Consider signing up for auto-debit, which automatically sends your monthly loan payments to the lender from your checking account. Some lenders offer a small interest rate reduction for using this option.
If all of your loans are with the same lender, you’ll probably make one payment for all loans; otherwise, you may wish to consolidate your loans. Note that you cannot combine federal and private loans, and you should consider consolidation carefully. If the interest rates of your loans have a large discrepancy, you can reduce the average rate and save money by making extra payments on the loan with the highest interest rate, thereby paying it off first. However, if you consolidate your loans, you’ll replace them with a single loan with a single interest rate, preventing you from utilizing this payoff trick.
When you consolidate a federal loan, the interest rate is based on the weighted average of interest rates on all of your loans, so consolidating federal loans won’t save money. Consolidating private loans creates a new loan with a new interest rate based on the current credit score of the borrower and co-signer. As your loan balance increases through college, your credit score decreases, and it takes several years of paying every debt on time to build a better credit score. Essentially, a private consolidation loan will have a higher interest rate if done too soon after graduation.
Your monthly bills will include more than just student loans if you decide to buy or rent an apartment, which will also add insurance payments, power bills, internet and cable bills, and more. You may want to consider reading a book to learn about setting and meeting your financial goals. Forbes recommends Beth Kobliner’s Get a Financial Life: Personal Finance in Your Twenties and Thirties and Suze Orman’s The Money Book for the Young, Fabulous & Broke.
Having an emergency fund to cover unanticipated expenses is critical. Aim to save six or nine months of your salary in a savings account. You never know what life may throw at you, so it’s best to be prepared if you were to lose your job or if your car needed a major repair. Be wary of credit cards; if you can’t pay off the credit card balances in full each month, you’re living beyond your means.
Create a descriptive budget to help you manage your money wisely by tracking and recording all of your expenses for at least a month, including even the smallest transactions. Use a spreadsheet, personal finance programs, tax software solutions or a CPA to categorize the expenses into broad categories, such as food, housing, transportation, medical care, student loans, and entertainment, and otherwise get your finances in order. Also, differentiate and label transactions into needs and wants. At the end of the month, compare your spending with your income. Seeing how much you’re spending can help you exercise control and make necessary cuts.
The first few years post college can be overwhelming as you face the world on your own. Managing student loan debt and learning to create and stay on budget can be stressful, but it is possible. By preparing early, you’re setting up a solid and healthy financial future.
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