Your Debt State When You Graduate

Graduation can be considered both the end of one chapter and the beginning of another. Finals are over, but twenty-somethings entering “the real world” are greeted with a whole new set of issues to tackle. The list of challenges likely seems all too familiar: finding a job, dealing with new pressures and people in the work place, friends moving to different places, the increased difficulty of meeting people your age…and on top of all that, it’s likely that you’ve incurred some – or a lot - of debt.

There are plenty of articles out there written by fellow millennials to help you cope with many of the issues above, but most leave you in the dark when it comes to dealing with the newfound financial strain you may be facing. Believe it or not, there are a few easy financial steps you can take to help lower your stress and feel that much more prepared to take on the world.

Look at Credit Card Debt
Take this hypothetical scenario: If you have $1,000 dollars in credit card debt with an A.P.R. of 20%, you will pay over $200 a year in interest. This debt is what you need to tackle first. If your debt is in the thousands, you may want to look into transferring that balance to a 0% card. These cards typically have 12-month terms, meaning you will not pay interest if you pay off the balance within 12 months. For example, the Chase Slate Card has a no balance transfer fees and has 0% APR for 15 months.* If you decide to make a credit card switch, it’s important that you do not increase your debt load. Make it your goal to pay off your credit card debt within this 12-month frame: setting up automatic monthly contributions is an easy, worry-free way to help yourself get there.

Build Up Emergency Fund
This one is self-explanatory: as a rule of thumb, it’s recommended that you always have a minimum of two to three months of expenses available in your bank account in the event of an emergency. Depending on your regular expenses, this may seem like a daunting task. However, by being a regular saver and making some temporary lifestyle adjustments, you can get there. It’s becoming increasingly common for recent grads to move back home, even briefly, to save money while making more permanent plans. This can be a great opportunity for you to save money on rent and build up your emergency fund, all while enjoying a few tasty home cooked meals.

Objectively Handle Student Loan Debt
Depending on your situation, you may be saddled with thousands of dollars in student debt. If you have a good credit score and a stable job, it may be worth it to look into website that offers lower fixed rates than the ones you have. and are two well-known online lenders.** The more debt you have, the more likely it is that you have some higher rate student loans that can be moved to lower rates. Income based debt repayment options exist as well. Always be researching and asking questions: do not assume your current plan is the only—or best—option you have.

It’s important that you aren’t overly aggressive in taking every single dollar you have to knock down your student debts. People may tell you to “pay off your debts as quickly as possible!” However, it is important to that you’re building your wealth while paying off your debts. There is no exact formula on when or how much to pay. Your solution is dependent on your liabilities, income, savings and rates. This is the time where it is important to talk with a financial advisor in order to see what objectively makes sense.

Build Wealth
Net worth is defined as assets (money in bank, investments, etc.) minus liabilities (loans, mortgages, credit cards). Right now, you may be in the red (more liabilities than assets), and as a recent graduate, that’s okay. Your goal is to “get in the green” and the first step is establishing a plan to help guide you there. Putting together a budget to pay down your debt and build wealth is crucial. Setting up automatic contributions to your accounts allows you to save money without even actively thinking about it, and you’ll be paying down debt and building your wealth before you know it.

Although it is crucial to build up an emergency fund in the bank, it is just as important that you get your money working for you. The days of when our parents were earning a large amount of interest in the banks are over. Get your money working for you by investing in stocks and bonds, (once you build up that emergency fund, of course.) Putting some money into a Roth IRA will allow your money to grow tax-free, if used for retirement. As always, it is important to meet with an advisor to see which accounts make sense, and how much you’re able to contribute in your given situation.

Final Thoughts
The first year after graduating can be a rough transition. Maybe after a while, you’ll go back to campus to visit friends still in school and realize how much you took your time as an undergrad for granted. However, the past is in the past, and it’s time for you to take control of your future. Imagine the situation you want to be in, and start taking steps to put yourself there. It all starts with your goals and the plan you put in place to help you get there. Welcome to the real world: you can do it.

By Ben Dunbar
Investment Advisor Representative

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Investing involves risk including loss of principal.