Graduation Day Has Come, Now What?
Congratulations, college graduate! You have passed an enriching educational experience. However, she is in the process of landing her first job, adjusting to the realities of adult life and waiting for her student loan payments to arrive. Now what?
Your Debt-To-Income Ratio: The Top Concern
One of your biggest concerns after college will probably be earning enough money to live on. Every year, a few graduates succeed on Wall Street or land a job at a major law firm. However, if you’re like many graduates and can’t find a job in your field right away, consider taking a job or two that are enjoyable enough to work with and can help pay the bills. There is no shame in working at a daycare or sandwich shop for a while until you land your dream job. Or, you can take a part-time job in your field and supplement it with an unrelated but decent-paying retail or restaurant job.
Keep spending as little money as possible. Living expenses after college can eat up a significant portion of a meager entry-level income. Reduce living expenses as much as you can. If you live in Brooklyn, NY, that could mean selling your car and relying on the New York subway to get around. If you live in Midwest Illinois, that might mean avoiding manicures and salon visits, or forgoing takeout for lunch every day, until you start earning a higher income. Compare your income with your expenses. This task really helps you see where your money is going. Create a monthly budget and stick to it.
You may need to make some drastic lifestyle changes after college to get ahead financially. For some students, that will mean temporarily returning home to their parents or family. For others, it will mean leaving the glitz and glamor of New York City, Los Angeles, Chicago, or any other big, expensive city they might have gone to college in, for a smaller, more affordable city or town. For others, it could mean dividing a house with three or four roommates. There is no right way to reduce living expenses; It all depends on how much debt you owe and what suits your lifestyle and professional needs.
Your monthly debt-to-income ratio is determined solely by the amount of money you spend compared to the amount of money you make. You want to minimize expenses and maximize income. That’s it, it’s that simple (but it can be very complicated). Find ways to save or cut beyond the obvious. Lower the thermostat in winter and turn off the air conditioning when you are not at home in summer. Replace your regular energy-absorbing light bulbs with fluorescent bulbs. Bike or walk instead of driving whenever possible to save gas. And, if you need the money and your hours have room, get a little extra money each month with babysitting, yard work, or freelance work.
Manage your debt and plan for the future
Manage your loans well. For some, this means consolidating all loan packages upon graduation for the best fixed interest rates. For others, it could mean placing loans in forbearance, as a result of a temporary inability to make full monthly payments. Other students choose loan deferral through civic engagement programs like AmeriCorps or by completing additional studies. Warning: Additional education can burden you with more debt, and you face the risk of reentering the job market with unmanageable loan payments and no work experience – an especially cruel fate if you weren’t especially passionate about graduate school in the first place. Think carefully about the best loan action plan for you.
Continue to avoid accumulating additional debt. Some financial advisers believe that low-income college graduates should make credit card purchases if they cannot afford to make cash purchases. Yet many new graduates fall prey to major debt traps. They start paying their utility bills with credit cards, then they think, “Oh well, maybe I’ll pay this bar bill on credit. And I’ll buy new clothes. After all, I deserve a little fun.” And that is the problem. It’s so easy to let credit card spending get out of control, and the consequences will come later, when you can’t make payments on time and your credit score is sinking.
However, there is a silver lining to using credit cards for moderate and necessary purchases – the card can help you build a strong credit history, which is essential for long-term loans like car and mortgage payments. If your willpower is strong and your nonessential spending impulses are non-existent, you might consider getting a credit card with the lowest interest rate you’re eligible for. Put your groceries or your electric bill, but not both, on the card each month and then pay the balance in full. You’ll avoid accumulating high-interest payments, and by the time you want to buy a home, your credit score will be excellent.
Lastly, consider consulting a credit counselor. Many professional credit counseling companies offer free or reduced-rate debt education and credit counseling to low-income students and professionals. These money gurus can help you assess your budget objectively, cut down on unnecessary expenses, and pay off debt. They can also help you formulate a plan for managing your money for the long term.
Good luck!
