For years, youíve put in the work to earn your degree. All the long nights, crazy schedules, demanding projects, essays, and assignments have finally led to this moment when you can proudly walk past rows of your peers to receive your degree. The moment comes with much congratulation and celebration, and you can finally take a breath. Youíve done it!
What comes next? The rest of your life, and it features a whole new set of challenges and responsibilities. If youíve had a steady job or a family of your own in college, the change might not be huge. But many new graduates have gone from high school straight into college. If this applies to you, the lack of structure could be a shock. Beginning to work full time may help you manage your time, but your overall motivation may shift from gaining knowledge to earning money.
Balancing your personal life, work life, and financial status can be challenging for anyone. However, if this is your first time really doing so without the resources a college provides, you may make some poor decisions that can have major impacts on the rest of your life. Here are some financial challenges and money management strategies to think about during your first year after graduation.
Budget for Safety
The first step in successfully managing your finances is to have a clear idea what you pay for each month compared to your income. Too many people simply assume theyíll be able to make ends meet each month because they have a steady job, but if youíre not paying close attention to where your money is going, you may come up short.
To create a budget, first, list your fixed monthly expenses individually as well as the dates payments need to be made. This could include your rent, utilities, car payment, auto insurance, health insurance, medications, cell phone bill, and student loans. Also consider costs that tend to fluctuate like filling up your gas tank and buying groceries.
You can even estimate how often you do things like eating at restaurants, going to the movies, and buying a cup of coffee. Itís also a good idea to budget at least a small amount to contribute to a savings account.
Once you've listed all of your regular expenses, compare this to the amount of money you earn or how much you'll need to earn or borrow in order to cover the costs. If youíre spending a large portion of your income on non-essential purchases, seeing them listed out can help you adjust your spending habits and maintain more confidence in your finances.
A clearly defined budget will give you the best chance to avoid missing payments and still be able to do the things you enjoy. However, as a recent graduate, you may be missing some of things on this list. For example, maybe you havenít found a full-time job or a housing situation you feel confident in. Creating as much of your budget as possible now can help you make better decisions as you explore your options for filling in those blanks.
Negotiate Your Student Loan Payments
Few people make it through college without taking on some kind of student debt. These loans are often easy to get, and they tend to stay in the background as you arenít typically required to repay them while in school. Most student loans have a grace period of six months after graduation before youíre required to begin making payments. That may seem like plenty of time, but it will go by more quickly than you think.
While you might be able to make the full payment amounts at this point, it could still be a good idea to contact your loan servicer about alternative repayment options. These include several income-based repayment plans that could reduce your monthly payment to as little as $0 per month until your financial circumstances improve. You may also be eligible for a deferment or forbearance, which would temporarily pause your payment schedule.
Itís important to be proactive about negotiating a realistic repayment plan before itís too late. At the very least, missing payments will hurt your credit. However, if any of your loans go into default ó usually after just nine months ó you may have to pay additional fees, your wages may be garnished, and you might lose eligibility for deferment, forbearance, and alternative repayment plans.
In many cases, student loans are the biggest financial commitment youíll face soon after graduation. While the terms of your loans may seem complicated, know that there are avenues to help you manage your payments.
Consider a Personal Loan
It takes time to get on your feet and comfortably cover costs for things like housing and meals which may have been covered by student loans until now. Perhaps your family is wealthy and can provide a financial cushion until you find a job. For many people, however, that isnít the case, and you may need to take out a personal loan in order to cover the gap.
This is definitely a viable option you can choose in order to maintain your independence and lifestyle. However, you should be very cautious when taking on additional debt before you have a solid financial plan. A small loan can help you balance your budget until you find a better job or a cheaper living situation, but letting your debt get out of hand can damage your credit and make it harder to make important purchases later on.
You may have accumulated student loan debt, but you wonít actually begin to build credit until after you begin paying off the balance. Even then, those payments will take time to have a positive effect. If you havenít built a credit history in other ways, this can limit your ability to get certain personal loans. Although getting a loan with no credit can be a challenge, it isnít impossible.
First, itís important to make a distinction between unsecured and secured loans. Unsecured loans donít require any form of collateral, and if you donít have a credit history, lenders will use your income to determine whether you qualify for the loan. If youíre already struggling with money, this might not be your best option. Also, unsecured loans are seen as riskier, so youíd also be paying a higher interest rate.
Secured loans require some form of collateral that a lender could take from you if you fail to make your payments. For example, if you own a car or are in the process of buying one, a lender would hold onto the title of the vehicle until youíve paid off the balance in full.
Payday loans use future paychecks as collateral if you need cash immediately. These can be good if you absolutely canít wait until payday. Payday loans often come with high fees and interest rates, and unfortunately some people get caught in a cycle of borrowing against future paychecks month after month.
Overall, secured loans are much easier to get, and they sometimes have lower interest rates. However, you need to be very careful to make all your payments on time or you could face fees, higher interest rates, and the loss of your vehicle or other property.
Finally, you might have more success applying for a loan with a cosigner who would agree to make payments if you fail to do so. Often a parent or other family member with a good job and a more extensive credit history could fill this role.
Before you apply for a loan, itís important to make sure the loan company is legitimate. There are plenty of fraudulent groups or individuals who pose as lenders, and they often target people with bad or no credit. These lenders can be particularly attractive because they may offer much lower interest rates with minimal or no application requirements.
Beware any lender that asks for upfront fees for insurance, taxes, or processing. Asking for these payments in gift cards is another red flag. Scammers ask for gift cards because they are very difficult to track, and itís much less likely youíll be able to recover those funds.
Itís important not to take anything for granted when dealing with financial challenges. Sometimes itís easy to get funds, but very difficult to pay them back. Itís also easy to resign yourself to believing you simply donít have any options to make ends meet. By creating a budget and paying close attention to the terms of your student loans and other debts, you are one step closer to cultivating stable financial habits that will help you throughout your life.