ôô

6 Tips for College Grads to Manage Money Like a Grownup

There's no reason the end of college life has to mean the beginning of money stress. Here are six fundamental tips you can apply now to set yourself up for a lifetime of financial success. 

By
Laura Adams, MBA,
Episode #590
6 Tips for College Grads to Manage Money Like a Grownup

3. Understand your student loans.

The next assignment for new graduates is to take a hard look at any student loans you have. Review their terms, conditions, and various repayment options.

For instance, Stafford federal loans give you until six months after graduation to start making payments. If you haven’t landed a job or find that your loan payment is too high relative to your income, investigate alternatives.

The standard repayment plan for federal loans requires fixed payments that get your balance paid off within 10 years, or 30 years for consolidation loans. However, there are a variety of repayment options that may be available for certain federal, private, or consolidated student loans.

  • Graduated repayment allows you to make lower payments at first, but then they increase every couple of years so you repay the debt within 10 years (or up to 30 years for consolidated loans).  
  • Extended repayment gives you up to 25 years to repay a loan and provides a substantially reduced monthly payment.  
  • Pay as you earn repayment (PAYE) allows your payments to be 10 percent of discretionary income, but not more than you’d pay with a 10-year standard repayment plan.  
  • Revised pay as you earn repayment (REPAYE) allows your payments to be 10 percent of discretionary income.  
  • Income-based repayment (IBR) allows your payments to be 10 or 15 percent of your discretionary income, but not more than you’d pay with standard repayment.  
  • Income-sensitive repayment allows your payments to be based on income and to be repaid in full within 15 years.  
  • Income-contingent repayment (ICR) allows your payments to be the lesser of 20 percent of your discretionary income or the amount you’d pay on a fixed repayment plan over 12 years.

Payments for income-based plans are recalculated each year based on your updated earnings and family size. Also note that if you’re married, in most cases, both of your incomes are factored in, whether you file taxes jointly or separately.

In addition to alternative repayment options, you may qualify for a loan deferment if you’ve hit a financial rough patch due to an illness, disability, or job loss. A deferment allows you to temporarily stop making payments for a set period of time. However, interest may still accrue, depending on the type of loan you have.

Don’t forget that if you choose an alternative repayment option for your student loans, you typically pay much more in interest over the long term.

Don’t forget that if you choose an alternative repayment option for your student loans, you typically pay much more in interest over the long term. Even though you make lower monthly payments, you pay interest for a longer period of time, which really adds up.

However, when your financial situation improves, you can always prepay your student loan at any time without penalty. You can make a lump sum payment or send more than the minimum payment each month to reduce the cost of your student loan debt.

If you’re still paying federal student loans after 20 or 25 years, you may be eligible for loan forgiveness, depending on the type of loan you have.

Always notify your lender if you're having trouble making student loan payments on time. They can discuss your situation and help you evaluate your options.

4. Know how to build good credit.   

New graduates may not have much credit history, which means you probably have no or low credit scores. But don’t worry, it’s easy to build good credit over time.

Your credit reports are like financial rap sheets, which are maintained by nationwide credit agencies including Equifax, Experian, and TransUnion. But thankfully, they reveal your good financial behavior as well as the bad. Your credit scores are calculated from the information in your credit reports.

High credit scores tell lenders and merchants that you’ve been responsible with money. A good credit history comes with privileges such as low interest rates on loans and credit cards, which can save you a bundle.

High credit scores tell lenders and merchants that you’ve been responsible with money. A good credit history comes with privileges such as low interest rates on loans and credit cards, which can save you a bundle.

But low scores mean that you won’t qualify for credit or that it will be expensive. And poor credit can trip up other areas of your financial life even if you never borrow a dime.

Your credit affects the rates you’re quoted for auto, home, and renters insurance. It’s a factor in promotional offers you receive and in security deposits you pay for utilities and cell phone contracts. Credit can even play a role in how potential employers evaluate you.

The easiest way to establish good credit is to pay bills on time. If you have a credit card, making charges that you pay off in full each month is a great way to slowly raise your credit score. If you can’t qualify for a regular card, using a secured credit card that reports payment information to the credit agencies is a foolproof way to kick-start your credit history.

Pages

The Quick and Dirty Tips Privacy Notice has been updated to explain how we use cookies, which you accept by continuing to use this website. To withdraw your consent, see Your Choices.