MoneyTips for New College Grads

When Sharece Hall, 25, was a student at the Georgia Institute of Technology, she, like many college students, didn’t have a financial plan. Although Hall worked a part-time job, most of her income went toward food, gas, and social activities. She also had three credit cards and amassed $57,000 in student loans. “I just thought, ‘When I graduate, I’ll get a job and pay everything back,’” says Hall.

When she graduated in December 2009, the former industrial and systems engineering major received no job offers. Still unemployed six months later, Hall, who had rented an apartment her senior year, moved back home with her parents. Since then, Hall has done freelance work as an image consultant and started a business, The Design Hall. Now she maintains a budget and uses accounting software to track her income and expenses.

College graduates leave school with an average of $24,000 in student loan debt and more than $3,000 in credit card debt. Many recent grads fall into the trap of spending more than they earn because they fail to create and follow a budget. Such habits can leave young professionals struggling with debt for years.
These 5 tips can help new graduates transition to the real world:

Create a budget.
Whether you prefer to track your budget on paper, with an Excel spreadsheet, or with an online budget planner, find a method that will simplify budgeting for you. List all your expenses and income. Remember, a budget isn’t about what you can or can’t buy; it’s about controlling your money. You can still spend on the items or activities you enjoy, just be sure to budget for them.

Save. Establish an emergency fund. black enterprise recommends saving six to eight months of living expenses to be tapped only in the event of an emergency. Factor your savings into your budget and develop the savings habit, even if it’s only $25 or $50 per month. Also consider moving back home with your parents temporarily if you need time to get your finances in order.

Know your student loan repayment options.
Options include standard, extended, income contingent, income-based, and graduated payments. If you’re not earning much, consider the extended program, under which you can pay smaller monthly payments over 25 years (but you’ll pay more in interest). Under the income-based plan, your loan servicer adjusts your monthly payments according to your salary–as long as you can prove you’re experiencing financial hardship. If you’re unemployed and unable to pay your loan, apply for forbearance, which temporarily postpones or reduces your payment (though interest will continue to accrue). Forbearance is granted in intervals of 12 months for up to three years.

Manage your credit. Since 35% of your FICO score is based on your payment history, it’s important to pay all your bills on time. Also, keep your debts low; use less than 10% of your available credit. Remember, 30% of your FICO score reflects the total amount of your indebtedness. Ten percent of your score is based on the mix of credit you have: auto and student loans, credit cards, retail accounts, mortgage loans, etc. But FICO does not recommend opening accounts just to diversify your credit mix. Inquiries stay on your report for two years and can lower your score, so don’t apply for new credit too often. It takes time to establish a credit history. What’s important is responsibly managing the credit you have now. If your debt is unmanageable, contact a nonprofit credit counseling agency, such as the National Foundation for Credit Counseling.

Get insured. Once you have a job, “Review your employee benefits package and take advantage of health, disability, and life insurance,” advises Yoli Marie, author of Financial Fitness for Young Adults (Financial Fitness Media; $17.99). If you have dependents, your employer-provided life insurance (usually equivalent to one year’s salary) can provide for them in the event of your death. Most young college grads don’t need to supplement their employer’s benefits, but if you own your own business or your employer doesn’t provide insurance, visit to shop for rates.