How New Grads Can Tackle College Debt

             While there are plenty of tears of joy as college graduates toss their caps, there’s another reason to shed a few tears. Reality bites. With the average public tuition $6,585 and the average private tuition $25,143, here come the bills.

            The projected total U.S. student loan debt outstanding for fiscal year 2010, when both public and private loans are included, is about $763.4 billion, according to Kevin Gallegos, vice president of Freedom Debt Relief. Put another way, that’s $2,704 for every person in the nation. Nearly 40 percent of graduates will take 10 years to pay back their student loans, causing some 44 percent to delay buying a house and nearly 30 percent to delay having children.

             How to tackle that debt and get off to a good financial start can be a challenge for any college grad, but far from impossible.

               Assess student loans

              The first thing to consider is how many student loans you have. If you are able to consolidate multiple loans with a single loan provider, you can often get a lower interest rate, says Dan O’Malley, CEO of PerkStreet Financial, www.PerkStreet.com, some lenders also offer discounted interest rates for setting up automatic payments. Once you’ve secured all the discounts you can, you need to decide how much you are able to pay down your each month. It’s important to figure out how much you can pay off given your paycheck. “Game out some different scenarios on payment amounts to determine how much interest you can save by paying a little more,” he adds.

             Manage credit card debt

            Many students graduate with mountains of credit card debt. It is helpful to put away your cards completely to avoid racking up more debt. Using cash or a debit card for most purchases helps you stay within a healthy budget. “For new grads who have already incurred credit card debt, there is no better investment than paying this debt off, as credit cards typically carry extremely high interest rates (typically 15-30 percent),” says Gallegos. While paying the minimum on student loans, grads should pay as much as possible to eliminate credit card debt.

            Paying your bills on time is a great start to establishing good credit. Late payments, missed payments and using too much of your available credit can damage your credit score, explains Todd Mark, vice president of education for Consumer Credit Counseling Service of Greater Dallas.

            Monitor your credit cards online and make sure the charges are accurate. If you’re having trouble making minimum payments, call your lenders and negotiate a more management payment plan, suggests Susan Howe, a member of the American Institute of Certified Public Accountants National CPA Financial Literary Commission

             Set a budget

            Make a list of your monthly expenses, debt payments, potential future expenses and goals for retirement. Now you can start developing a budget to keep yourself out of financial trouble, says Melinda Beckmann, a client service associate with Palisades Hudson Financial group. In the beginning, you may need to focus on having enough for your rent, utilities, groceries, student loan payments and weekend spending money. “The key is to avoid spending beyond your means,” she adds.

             Prioritize. Decide what’s most important to you and adjust your budget accordingly. “Maybe dinner with friends once a week is important to you or having the best entertainment system because watching movies at home is your favorite pastime. You don’t have to deprive yourself of all of life’s pleasures, but  you do need to be aware of your own situation and plan for it accordingly,” says Kip Kiebke, president of New Financial You, a credit restoration and wealth accumulation firm.

            Be mindful too, of budget busters. An unexpected illness or injury can be financially devastating. With health reform, college graduates can now stay on their parent’s health insurance plan up to age 26. They may also find individual plans between $50-$100 a month, says Carrie McLean, a consumer specialist with www.eHealthInsurance.com.

            Start saving

          Start saving with your first paycheck. “Set a reasonable amount to contribute to your savings account and take that amount out of your paycheck every time, before you think about spending anything. You won’t miss the money and will easily build up your savings, even if you start small,” says Beckmann.

            Begin contributing to a 401k immediately. Get accustomed to living on 85-90 percent of your income. If you start setting aside income early, you will be better equipped to increase retirement savings as necessary to meet your long term goals, says Robert Standish, certified financial planner at BPU Investment Management. If you save approximately $4,000 per year for the next 40 years, assuming an 8 percent rate or return, you would have over $1 million at age 62. If you wait ten years, age 32, and invest over 30 years, instead of 40, you reduce the asset amount to under $500,000, says Standish.

            The future may seem far away, but if you think the college years went fast, you haven’t seen anything yet.