A recent study by Accounting Principals showed that many recent college graduates are not prepared to deal with the amount of debt they have acquired once they graduate. The study showed that many of the students are graduating with debt that is close to their starting salaries. It also showed that many graduates thought that they would have more available income once they graduate, but instead they are struggling to meet their basic living expenses and deal with their student loans. Exit counseling through the financial aid offices of colleges, may not be enough to help graduates survive.
If you are currently a student, there is a lot you can to do manage your money in college, so that you do not end up with large student loans and other debt. You can transfer to a state university, live on a budget and work to reduce your student loan debt. It is important to make these changes right away. However, if you have already graduated, and you find yourself in this situation, there are steps you can take to make your life more manageable.
The first step is to get on a written budget. Your budget is your biggest tool to help you get control of your finances. If you need help setting up a budget, your employer may offer financial classes as part of an employee assistance program. A local church may offer a program such as Financial Peace University by Dave Ramsey or you can sign up to take it online. Another option is to see if your bank or credit union offers a similar program. These programs should help you set up a budget, review it with you and then look at other long-term financial goals.
If you have federal student loans, your lending company should be willing to work with you to set up a payment you can afford. You can consolidate your loans, and choose a longer payment term, which will make your payment more manageable. Another option is to apply for income based student loan payments or to put the loan on hardship deferral until you clean up some other debt. Each of these student loan payment options does require you to submit proof of your income and other expenses. However, the process is worth the extra effort, because you can be charged late fees and other penalties if you do not pay your student loans. Student loans are rarely forgiven in bankruptcy and you will need to pay them back.
Another thing many new college graduates need to do is to adjust their current expectations. After looking at your budget and your starting salary, you may need to adjust the timeline for your goals, so that they are more realistic. If you budget carefully, you should still be able to reach your goals of home ownership, and retiring early. However, you may need to slow down the goals or look at ways to make more money. When you graduate from college, you are just beginning your life. It is important to take the time to enjoy the phase of life you are currently in.
The most important goal you can tackle in the beginning is getting out of debt. The next one is saving for retirement. If you have an employer’s match, you should start by contributing up to the matching point, and then work on getting out of debt. A debt payment plan will help you focus your payments, which will help you get out of debt more quickly. A second job can speed up the process too.
If you have debt close to your annual income or more than what you currently make, it will take time to clean up the mess. It is important to realize that you can do it. You can take control of your finances, and through careful budgeting and planning get rid of the debt, so you can live the life you were working towards when you went to college. It may take a few more years of a tight budget and careful spending, but it is possible to recover from this difficult financial situation.