Graduating from college is a momentous occasion. It is also a scary time because you will leave the cocoon where you have spent your whole life and be thrust into the real world. It can be a dark and scary place that is ready to spit out the young and the naive.
Sadly, the youth of today are facing a precarious future. Jobs are still hard to come by and student loans need to be repaid. It is very important that you manage your debt properly or else you could find yourself stuck between a rock and a hard place.
Here are five steps that recent college graduates can take to effectively manage debt and take control of their finances.
Create a Budget and Stick to It
The basics of financial management will tell you that the first thing you should always do is to create a budget. Seeing the numbers will definitely bring you down to reality. By figuring out your expenses for the month, you will be able to allocate your income the right way. You will be able to see if you are spending beyond your means. If that is the case, you either have to increase your income or cut down on your spending.
Having a budget requires a follow through. You should stick to that budget as much as possible and be disciplined enough not to give into impulse buying. You want to think carefully about each major spending decision.
Only Buy Stuff on Sale
A good way to save money is to never buy retail and always buy during the sales. This is especially true for items such as clothing, shoes, and electronics. During end of season sales, you can get clothing up to 70% off. That’s massive savings, especially for work outfits. The thriftiest person would buy the knockoff brands and get it for so much less. The smart person would work out a budget for the year. By buying during the sales, you can now afford to purchase more expensive brands with the budget that you have.
Sales are often cyclical and seasonal in nature and they tend to follow the same pattern year after year. Schedule your purchases so that you can save up and free some up cash during those days.
Prioritize and Start Paying off Debt
Chances are you probably left university with a mountain of student loans. You will be spending the first few years of your working life paying off those debts. Make that the primary financial objective for the foreseeable future.
Work out a realistic plan to paying off your student loans. If you have extra cash, make more than the minimum payment or restructure your payment plan. Throw in your bonuses as well. The faster you finish paying off those loans, the less the total interest amount will be.
Avoid Using Credit Cards as Much as Possible
It might be tempting to use your credit card to make zero interest payments or to finance something that you are unable to purchase with cash. Rising credit card debt is a trademark of America’s youth right now. It’s sad to see so many young people with terrible credit scores because they had to default on their credit card payments.
Even if the credit card companies offer good incentives, don’t pay with a credit card. Use a debit card or pay in cold, hard cash. If you have to use a credit card, pay the amount in full. Do not just give the minimum amount and let yourself be buried under all the finance charge. The rule of thumb is if you cannot buy the item using cash, then don’t charge it to your credit card.
Get Roommates and Split the Rent
After spending four years cramped in a dormitory room with two or three other people, the last thing you want is a roommate. You will be so tempted to get your own apartment so that you will have all the privacy that you need. You might want to hold off on that one. Rent usually takes out that biggest chunk from your paycheck. With so many bills and loans to pay, having your own pad will probably take a backseat for the next few years. Grab two or three friends and share an apartment. The rent for a bigger place divided by a number of people will still end up cheaper than paying for a cramped studio on your own. You can put the savings towards paying off your student loans.
What other ways can you think of to help recent college students manage their debt?