If you are in your early 20’s and are just starting your career after college, here are a few things you need to be sure to evaluate as you move forward into a long term financial plan.
Evaluate your debt:
If you, like most graduates today, needed to take loans out to help pay for your education, you may have a large amount of debt (Over $20k on average) which may have been bought and sold by your lenders while you were still its school.
It is important that during your 6 month deferment period after graduating you use that time to figure out exactly how much you owe and to whom.
Balances and current interest rates are particularly important.
Make a budget:
Compile all of your monthly expenses to see how much of your income you aren’t already spending on living.
As part of that, you can expect your day-to-day expenses to go up about 40% after college as you move away from eating nothing but Raman noodles and drinking cheap beer.
Make sure to include rent, utilities, fuel costs for your new commute, various insurance, cell phone bills, etc. From this, you can determine how much each month you can apply towards your debts.
In calculating your take-home pay that becomes your budget, be absolutely certain that you are maximizing any 401k match your company offers as well as picking a health benefits package that makes sense for you.
401k matches are essentially free money, and by using government health programs like an HSA or FSA can help save you money in tax benefits.
Your HR rep can explain both to you at length and I encourage you to listen and ask lots of questions.
Restructure and organize:
Let’s say that the results of your budget are that you can use $600 a month to pay down debt.
Using the information you got earlier evaluating your debt, set up repayment of your loans so that you can pay the least amount possible on all of your loans except the one with the highest interest rate.
This may be a good time to look into loan consolidation as well.
Federal and Private loans must be consolidated separately but doing so many help you decrease the minimum you must pay on them, that way you can dedicate more of your $600 dollar budget to your higher-interest loans.
By knowing your current debt situations and having a clear budget you can target your debt in the most efficient way possible to avoid paying more interest over the life of the loan.
Plus you will be a lot less stressed if you have a budget where you are already planning for a set amount of your income to be dedicated to your debt.