Congrats, 2016 college grads! Now that you're done with school, you get the privilege of being pushed into the swimming pool of real life head first, no lifejackets allowed!
The time has come for you to get a job, pay your own rent, get your credit in order, stop overdrawing your checking account, and learn to budget. Oh and on top of all that, in six months you're gonna have to start paying back all those college loans. AMAZING, I know! You're broke and freaked out and completely unprepared for the tasks ahead. But don't stress out too much. You can do this, and we're here to help you see it through.
I know how you feel from personal experience. Two years ago I was a broke graduate student living entirely off my loans. I had no money of my own, no health insurance, my credit was nonexistent to the point where I was denied every time I tried to apply for a card, and couldn't get a lease without a cosigner. For all I had learned in high school, college and grad school, I didn't feel prepared to take on the world on my own after graduation. I didn't know how I was expected to learn all this complicated financial mumbo jumbo on top of job searching and generally trying to get my life together.
I was lucky. I found a job that forced me to write about credit, health care options, thrifty living, paying off student loans and other financial issues in a way that other people could understand. This meant I was spending the better part of every day researching the things I'd found so scary just months before, and slowly but surely, I began applying the things I was learning to my own life. Soon, it all started to feel manageable, and I began to see real changes in my financial life that I never before believed were possible.
So here are my eight best tips for recent grads looking to get a jump on their finances while retaining the ability to, you know, go out and have fun every so often.
Dealing with student loans.
When you're on a tight budget, having to shell out several hundred dollars a month towards something other than food and rent can be really tough. But you're not alone, not in the slightest. In fact, there are about 40 million other Americans currently sitting in the same, debt-filled boat. But we all have options for repayment, and being aware of these options is crucial.
Here are the plans you can choose from to repay federal student loans:
The Standard Repayment Plan: This plan will save you the most in interest, and will get your loans paid off in the least amount of time possible, but unless you're flushed with cash right out of college, the fixed monthly payments might be a bit more than you can afford right away.
The Graduated Repayment Plan: This plan is a little more forgiving to recent graduates, as it starts with low monthly payments and increases every two years on the assumption that you will be making more and more money over time. However, it's an assumption that might not pan out, and if two years after graduation you don't find yourself making any more money than you were six months out, the sudden change in your loan payment amount can be jarring.
The Extended Repayment Plan: This plan stretches out your loan repayment into a longer period of time (up to 25 years), which means lower monthly payments, but WAY more interest paid over time.
The Pay As You Earn Repayment Plan: If you're going through a tough time financially, you could be eligible for the PAYE plan, which caps your monthly payments at no more than 10 percent of your income. In addition to the payment cap, any loan balance you have left after 20 years will be forgiven. You will still end up paying MUCH more in interest with this plan than with the standard or graduated plans, but it's still a good option if you're having money woes and don't want to worry about being bankrupted by your student loans.
The important thing to remember about these plans is that you can always change them. I'm currently on the Extended Repayment Plan, but I cringe whenever I look at my payment timeline and realize that if I stayed on this (until 2040!!), I would end up paying more in interest than the actual amount of money I borrowed. That's unacceptable to me, but right now I'm not yet at the point where I can switch over to the Standard or Graduated Repayment Plans. I try and combat my looming debt by paying a bit more than my monthly payments when I can. Even an extra $20 can help chip away at the interest I'm accruing until I can make the switch without feeling overwhelmed.
Yes, you should consider how much money you'll be paying in the long run. That's an important factor in choosing a repayment plan. But you also shouldn't feel bad about going with the plan with the lowest possible monthly payments if you're currently in a financial bind. Talk with your lender about which plan is best for you. Believe it or not, they're actually very willing to work with you to make sure you keep your head above water.
And don't forget to deduct any interest you payed on your student loans when you do your taxes! You can deduct up to $2,500, which can really add up!
For more info on how to pay of your student loans faster and cheaper, check out our recent article on the subject.
Going from credit zero to credit hero.
When I was in college, I thought my lack of a credit score was a good thing. Sure, I didn't have a credit history, but I also wasn't in credit card debt! I didn't have any maxed out cards! I paid for everything in cash or debit, and thus could only spent the money I had. I was actually proud of the fact that I had no credit to speak of, it must have been better than having no credit at all, right? Wrong. As ridiculous as this STILL seems to me, even bad credit can be preferable to having no credit, as potential landlords and credit card companies alike seemed to revel in turning me away like I was some kind of credit-free ghost. This was so frustrating: how was I supposed to build credit if I couldn't get anyone to give me any?
For me, the answer was to get my dad to cosign for me on a credit card with a small, $250 limit. Had he not been willing or able to do this, I would have applied for a secured credit card, like the Capital One Secured MasterCard, which requires you to make a security deposit (you'll get that back when you close the card) before you receive your card. Your credit limit will be small, $200 to start, but this card reports regularly to all three major credit bureaus and will help jumpstart your credit if you don't have any. It's annoying to have to put a down payment on a credit card, but it's worth it in the long run if you need to start building up your score.
Once you have a credit card, responsibility is key. Use it to buy the things you normally would, then pay it off diligently every single month. When you've built your credit up enough, apply for a card with cash back rewards, and start reaping the benefits. After about a year of building my credit, I was eligible for a Chase Freedom card, which I absolutely love, and since becoming a cardholder last year, my credit has yet again taken an upward jump, from "Fair" to "Excellent," due to how much more available credit I have compared to my debt.
I monitor my credit every day using the Credit Karma app, which is free to download for iOS and Android users. While it might not be 100 percent accurate all the time, it's a great free resource for people who need help with building their credit scores, and it offers credit building advice and a detailed breakdown of your score.
Grab a roommate.
Roommates are key to post-grad stability. In Chicago, where I live, studio apartments and one-bedrooms under $1,000/month are unicorns, and the cheap ones are usually too far away or too run down for me to ever consider renting. Get a roommate or two, however, and you can cut down you monthly costs from $1,000+ with utilities to half of that for a much bigger and nicer place. Sure, I've had my fair share of crazy roommates, but for the most part, if you have a friend who you get along well with, is solid in his or her finances and is a reasonably clean person, going in with them on your dream apartment is a pretty solid financial decision, especially if you live in a big city.
Get yourself insured.
Health insurance is expensive, but you know what's more expensive? Breaking your leg without insurance and having to pay the full cost of your medical care. If you're under 26 and still on your parents' health care, or if your company offers an insurance package, yay for you! If not, get yourself over to healthcare.gov and browse through your options.
If you make less than a certain amount (this varies by state, in Illinois it's around $16,000/year), you will automatically qualify for Medicaid based on your income alone. If you make more than that but still need help, you probably will qualify for a Marketplace health plan with lower monthly premiums and/or savings on out of pocket costs like deductibles and copays. Before I got insurance through work, I had a really great PPO plan through the Marketplace that was both cheap and perfectly suited to my needs as a young, healthy person who is also an obsessive hypochondriac.
Check to see whether or not you qualify for healthcare savings in your state here, and don't gamble with your health.
Learn to cook!
Seriously, do it. Eating out is fun and tasty, but it's also expensive and generally a lot more unhealthy than just cooking your own food. I used to take pride in the fact that I didn't know how to cook, but now it's one of my favorite activities. I find it therapeutic, relaxing and rewarding, and my meals are always cheaper and packed with a LOT less calories than they would have been if I'd ordered takeout.
If you need a place to start, check out our recent article on pantry staples that are cheaper and easier to make at home!
Set up auto-pay on everything.
Set up auto-pay to make sure your cell service is never unexpectedly cut off.
What's worse than paying your bills? Forgetting to pay your bills and getting slapped with a late fee or interest payment on top of your unpaid balance. Being adult means you have a lot of different bills to keep track of: cable, internet, gas, cell phone, water, electricity, student loans, credit cards, monthly subscriptions...the list goes on.
When I first became an Independent Woman (TM Beyoncé 2001), I tried to keep up with all my bills manually, to disastrous results. It felt like I was always forgetting something. Sometimes my phone would get turned off without warning, or my already non-existent credit score would be further poxed by an unpaid utility bill. It wasn't that I didn't have the money to pay for these things, it was just that with so many different bills to remember, I would lose track of what I'd paid and what I hadn't, not to mention the nightmare that was trying to recall 15 different user names and passwords for each online payment portal. Not only did this irresponsible behavior affect my credit, it also lost me some cash when I was forced to pay a hefty down payment in order to activate the electricity in a new apartment when the company noticed I'd fallen behind on my payments at my last place.
My financial life improved drastically when I started enrolling in auto-pay for all my monthly expenses. Now I get each of my bills automatically taken out of my checking account on the day they're due, and I never have to deal with late fees, down payments, or unexpected service outages due to my forgetful brain.
Ditch your car (if you can).
Unfortunately, this advice doesn't work for everyone. There are still many places in this country where you literally cannot live without a car. But in large cities with good public transit, having a car is optional, and opting out saves me hundreds of dollars every month. If you are looking to give up your wheels in favor of your wallet, check out our article on how to survive in the city without a car -- and never miss it!
Figuring out frugality.
It's tempting to spend your first paycheck from your first "real" job on new shoes, a fancy dinner, and a round of drinks for the whole bar. It's tempting to try and keep up with your high-rolling friends and spend all your time drinking pricy champagne in fancy nightclubs. I get it! But if you want to be in good financial standing later in life, you're gonna have to cut back on some of that. Go to house parties where the liquor is free, or host a pre-game before the bars. If you want that fancy nightclub experience without the high cover charge, try out an app like Surkus, which pays you to go to swanky events and offers additional incentives like free food and drinks.
Start a savings account, and actually save a portion of your paycheck every month. If you need help with this, try out Digit, an app that pulls small amounts of money out of your checking account every few days and stores them until you have a secret stash of cash you can do what you will with. It's always good to have an emergency fund for when stuff hits the fan and you need a lot of money quickly. These things happen, and the only way to be prepared is to start saving now just in case.
Finally, when it comes to shopping, stick with outlets, thrift stores and online sales, like the ones you'll find every day here onBrad's Deals. You can look like a million bucks without spending as much, but you gotta shop smart!
Figuring out this whole adult thing can be tough, but if I can do it, so can you. Don't stress out, learning the way to financial success takes time and lots of practice, but the sooner you get started, the sooner you'll have it all down pat!
This article first appeared at Brad's Deals.