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Financial Tips for New Graduates

Accomplish these money-saving assignments right after graduation.

By
Laura Adams, MBA,
Episode #178

In this post I’ll give new graduates some money-saving assignments to accomplish as they say goodbye to academic life and move into the working world.

Set Up the Best Bank Accounts

One of the first things you need to do after graduation is to set up high-yield bank accounts. A checking account you may have had while in school might not be the best one to keep going forward. Now’s the time to get serious about putting your money to work by opening up a free high-interest checking and savings account that’ll earn a competitive interest rate.  Quick Tip: if you enroll in a linked account you can skip overdraft coverage and avoid risking hefty fees.

How to Find the Best Bank Accounts

I recommend that you visit checkingfinder.com as soon as possible to take a look at the best options for your location. I really like that site because their offers have the highest rates, are FDIC-insured, have free online banking, and refund up to $25 of your monthly ATM fees if you use a machine that’s out of network.

An Example of a Great Bank Account Offer

When I input the Orlando zip code and sort the results by rate, the top offer at checkingfinder.com is an account with an annual percentage yield (APY) that’s 3.51% for balances up to $25,000. That’s much higher than the going rate for a five-year CD right now! To get that awesome rate you have to meet three easy requirements each month:

  • Make a minimum of 12 debit card purchases

  • Have one direct deposit or make one automatic bill payment

  • Receive your account statement electronically

This particular offer also gives you the option to open up a free high-interest savings account that pays 2.51% on balances up to $10,000. The two accounts are linked and they work together so the interest you earn on the checking account plus any ATM fee refunds are automatically deposited into the savings account. However, since the checking account rate is so good, I’d opt to keep as much money in that account as possible. Remember that bank account offers are subject to change and location, so check for the most competitive offers at least once a year.

Start to Build Up an Emergency Fund

Bank account offers are subject to change, so check around for the most competitive offers at least once a year.

Learning how to handle money wisely may be a challenge for some new graduates. The best advice I can give you about becoming financially responsible is very simple: Never get caught without an emergency fund. Start building up a reserve fund of at least a few thousand dollars right away so you’ll be prepared for any unexpected expenses like car repairs or medical bills that aren’t covered by insurance. You should ideally keep three to six months’ worth of your living expenses on hand and never touch that money except when you’re faced with a serious financial dilemma. Emergency funds are not for shopping, going on vacation, or anything else that you could truly survive without. 

Don’t count on using a credit card to bail you out of a jam. If you don’t have the money to pay off the credit card, you’ll get stuck paying huge interest charges on the balance month after month until you can pay it off. That makes your emergency cost even more! Your high-interest savings account is the perfect place to keep your emergency money because it’ll be accessible, safe, and earning interest.

I have a lot of tips that can help you put money aside in my episode on saving money.

Understand Your Student Loans

Your next assignment is to take a hard look at your student loans. Be sure you understand all their terms, conditions, and various repayment options. Find out when your grace period ends and mark that date in red on your calendar because that’s when you have to start making principal and interest payments. For instance, with Stafford federal loans you have 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 what alternatives you have. 

How to Repay Student Loans

Here are four repayment options that may be available for certain federal, private, or consolidated student loans:

  1. Extended repayment. This plangives you up to 25 years to repay a loan with a substantially reduced monthly payment.

  2. Graduated repayment. This optionallows you to make very low payments for several years, followed by standard principal and interest payments for the remaining term of the loan.

  3. Income-sensitive repayment. This option allows you to choose a loan payment amount that’s between 4% and 25% of your monthly gross income. You have to be approved for this repayment plan each year.

  4. Income-based repayment (IBR). This is an option when you can prove a financial hardship. It allows you to cap your monthly loan payment at 15% of your discretionary income. After paying for 25 years, if you weren’t able to repay the entire loan, you may be eligible for loan forgiveness from the federal government.

In addition to alternative student loan 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, for instance. A deferment is when a lender allows you to temporarily stop making payments for a set period of time. Interest may still accrue, however, depending on the type of loan you have. So if you ever have serious financial problems contact your lender to discuss your situation and ask for a deferment application.

How to Save Interest on Your Student Loans

If you choose to use an alternative payment option for your student loans, remember that it’ll usually cost you much more in interest over the long term. Even though you make lower monthly payments in most plans, you’ll end up paying 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 lower the cost of your student loans.

A final quick and dirty tip is to always notify your lender if you start to have trouble making your payments on time. They can help you evaluate all your options. Also let them know when your contact information—such as your mailing address, e-mail address, or phone number—changes.

There’s also good news if you’re a college graduate: According to the Department of Labor, unemployment for young adults with degrees is a third less than for those with just a high school diploma. So, even though our economy is still shaky and you may feel saddled with student loan debt, having a college degree can give you a huge advantage as you begin your job search and career.

Connect with Money Girl

If you have money questions or topics you’d like me to cover, be sure to send an e-mail to money@quickanddirtytips.com, send a Tweet to @lauraadams, or make a post on the Money Girl Facebook page. Also check out my new blog at smartmovestogrowrich.com. You can watch a video I posted about how to organize your financial records and see how I stay super organized.

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