Tips For College Grads to Manage and Minimize Debt
Written by: Kristy Welsh
Last Updated: July 13, 2017
After spending four challenging years earning a college degree intended to maximize your financial future, there is nothing more discouraging than starting out your brand new life with a big pile of student loan debt. While much of this may be unavoidable, depending on the size of your student loans, there are certainly steps you can take to effectively manage and minimize your debt going forward.
Minimize Debt During School
College graduates are leaving school with a collective $1 trillion in student loan debt, so it is imperative students exhaust every possibility for minimizing debt. Explore all your options for scholarships and financial aid, even if you don't think you'll qualify, as you may be surprised. Work a part-time job during the school year; full-time in the summers. Avoid credit cards (at least until your senior year). And if you have any unused student loan money, avoid the temptation to spend it on extras and return it to the lender instead.
Apply For a Credit Card
Credit cards in your name can help establish the kind of money-saving credit history you will need after graduation, from renting an apartment, to turning on utilities, to getting insurance. However, it can be tempting for college students who are pinching pennies to max out cards, racking up debt that haunts them way beyond graduation. Avoid this trap by waiting until your senior year to get a credit card in your name, as it only takes six months to establish credit. If you have trouble qualifying for an unsecured credit card, get a secured credit card, which can help build credit equally well. Once you've proven to be a responsible borrower, you should have no trouble upgrading to an unsecured version with the same lender.
Use Your Credit Card Wisely
The only way to prove yourself responsible with credit is to use it. So while you don't want to max out a credit card, neither do you want to let it gather dust in your wallet. Get in the habit of using your credit card, but only on essentials so as to avoid buying things you don't need. Paying your regular monthly bills, like the phone bill or the electric bill, with a credit card are a good way to go.
Pay Off Credit Card Balances Every Month
Try to avoid paying interest fees by making it a habit of returning your credit card balance to zero every month. This means, of course, only charging as much to the card as you can turn around and cover with cash.
Obtain Student Loan Payment Details
Before you graduate, find out the precise date you are expected to start making your monthly student loan payments, as well as the amount. If yours is a federal loan, you will automatically be entered into a 10-year payment plan. While you can extend the length of this loan term, do your best to manage it over 10 years time. Though an extension will lower your monthly payments, it will also increase the interest, increasing how much will actually pay in the long run.
Create a Monthly Budget
Sit down and do the math on your ratio of monthly income to expenses. Factoring in your student loan, rent, utilities, food, and other necessary expenses, subtract that from your paycheck, and you'll know how much you have left over for savings and extras.
Pay Your Bills Early
Living expenses are large enough without tacking onto them fees for making late payments, on anything from rent and car payments, to utilities and credit cards. So instead of waiting until the last minute and potentially missing a payment by as little as a day's time, get in the habit of paying your bills early -- if you can swing it, as early as the day the bill arrives.
Live on the Cheap After Graduation
If you're already in the habit of pinching pennies in college, it's not too much of a stretch to continue doing the same once you graduate. Certainly, you want to acquire nice things, but that can wait a year or two while you get into a new groove of living, experiencing firsthand exactly what things cost, what you can afford, and what's really important to you in terms of future financial investments.
Start to Save Money
The emphasis on this point is not so much about quantity as it is about quality. Starting out, the benefit of saving is more about growing the habit than any big stack of cash. As long as it's a behavior built into your financial life, the size of your savings will naturally grow as does your income.
Monitor Your Credit Reports
The better your credit score, the better terms you'll be able to secure from lenders. The last thing you want to do is assume that just because you are making on-time payments to your creditors, your credit reports are in tip-top shape. The credit reporting bureaus do make mistakes, and it's your responsibility to catch them. And while you may not be thinking about buying a home or a car anytime soon, it's still important to manage the credit history now that will affect you for many years to come. You are entitled to one free annual report from each of the credit agencies. Request your copies via AnnualCreditReport.com.