Congratulations college grads! Do you remember the scene from “The Graduate” with Dustin Hoffman where he is barraged with questions and advice at his graduation party about where to work? Oh wait, you weren’t born yet when the movie came out 48 years ago. Come to think of it, your parents likely weren’t either. Well, get the movie from the library and watch it sometime. It is a classic scene.
I do intend to barrage you with advice, but not about going into plastics. This advice is to help you avoid some typical financial pitfalls of a new college grad as you enter a new phase in life.
Understand Your Student Loans:
Do you have federal loans? Private loans? State loans? Do you owe the school directly? It can be a daunting task to sort it all out. Where to start:
- Find all your federal loan information at the National Student Loan Data System (NSLDS).
- Private loans probably required a co-signer. To confuse matters, some private lenders also service federal loans, so it can be hard for the lay person to distinguish between them. You may find your private loans on your free annual credit reports at www.annualcreditreport.com.
- States have their own educational loan programs, and rules and terms will vary. Some states report the loans to the credit bureaus, others don’t. You will most certainly get mail from them. Be sure mail is being saved for you at your permanent mailing address. If you went away to college, remember to change your address with your college post office.
- You may have a debt to the school itself. The school business office or financial aid office can help you track down that information.
- Did your parents take out federal Parent Plus loans to help pay for your education? You may have an agreement with your parents that you will pay these loans. You won’t find them on your credit report or NSLDS report, but your parents will on their own reports. (FYI to parents: you are legally responsible for the Parent Plus loans.)
- Set up a file folder for each loan program. Know when payments begin and due dates. Federal loans and some private loans have a grace period of 6 months after graduation before payments begin.
- To learn about payment options for your federal loans go to www.studentloans.gov.
Major take-away here: Don’t ignore your new job.
You Need A Car To Get To Your New Job
(Note that I used need, not want. Know the difference.) Promise me one thing: Be sure you develop a budget based on your net (after taxes, take-home) monthly income to know what you can afford before you take on a car loan. Find a useful worksheet here: Expense Tracking Form. Car dealers are happy to sell you more than you can manage. In that budget, factor in your student loan payments. They may not be in repayment yet, but they will be. I can’t tell you how many recent grads have come into my office with “student loan” problems, when I see a brand new car loan on their credit report. Without that car loan, their student loans wouldn’t be such a problem.
Major take-away here: Do the math, know what you can afford!
You Want Your First Apartment
Promise me another thing: Don’t sign any leases until you’ve got that budget. Again, don’t forget the impending student loan payments. I know it is harsh to hear, but you may have to continue to live at home. Trust me, your parents aren’t likely to be thrilled about the idea, either. To make life easier for all of you, offer to pay rent. Refer to your budget to know what you can afford. Be a considerate renter—clean up after yourself, help with house/ yard chores, don’t fight with your siblings … You know what a considerate person would do. (Do I sound like your mother?) Maybe you can work out a car sharing deal with your parents to reduce your transportation costs, too.
If your own place (with or without roommates) can be realistic, read this blog post: YOUR FIRST APARTMENT!
Major take-away here: Ditto above—do the math!
Save. Save. Save.
I have three SAVE’s for a reason. There essentially 3 levels of saving we should all be doing.
Periodic expenses: Classic example is car repairs. You heeded the advice above and got a less expensive used car. Cars are mechanical and they need maintenance and repairs. Comes with the territory. Be prepared. Other periodic expenses can be gifts and holidays, vacation, insurance premiums, etc.
Emergency savings: Prepare for the unexpected. Good example is a broken wrist horsing around and you can’t work. Your employer offers disability insurance but it likely only provides 60% of your income.
Long term: Retirement savings. I know it is impossible to believe at your age that you will ever be old. I am here to tell you that, with any luck, you will be old. If your employer offers a 401k plan and a match, you are a fool not to contribute. That match is free money. Even if you don’t have a match, contribute! Time is on your side. Even modest contributions at your age will grow to be real money when you need it. The miracle of compound interest is truly a miracle.
Major take-away here: SAVE! SAVE! SAVE!
Left School With Credit Card Debt?
Like many college grads, you may have a hefty credit card balance following you home from school. Start out your new phase of adulthood with a concrete plan to pay off that debt. A Debt Management Plan (DMP) can be just the ticket. Look at the full credit card statement. What is the APR (interest rate) on that debt? How much of each payment is going just to pay interest? How long will it take you to pay the debt with minimum payments? If you audibly gasped in horror, call us now at 888-577-2227! The DMP can help lower those rates, set up a concrete plan to pay the debt in full, and in many cases can help improve your credit score. Get started online: Conquer Your Debt.
Major take-away here: Tackle the credit card debt head on with a DMP.
Okay, I’m done lecturing. I wish you a wonderful life!
Financial Counselor Mary Ellen Kaluza is an expert in helping you conquer your debt.