Becoming Debt Free After College
Life out of college is a mixed bag. On the one hand, your earning potential is suddenly higher than it has ever been. However, you’ve probably accumulated some amount of debt, and possibly a mountain of it. Graduates need to find the balance between understanding that your debt is real and needs to be repaid, and not becoming overwhelmed to the point of making bad decisions. You‘ll have to let go of some things and more importantly change your attitude towards money, earning, saving and perhaps a bit towards life in general.
Make a budget. Cutting out unnecessary expenses is key to achieving the best income to spending ratio. Get in the habit of preparing your own meals and packing lunch every day to cut on the costs of eating out. You’d be surprised just how food restaurants bills can add up over time, and you’ll be doing your health a favor too.
Reconsider your on-going expenses and cancel services you don’t use. Cable. Gym memberships. Going to movies every weekend. These are the types of things you might want to cut back on until you’re out of debt. Budget cuts don’t need to be severe, but a few trims here and there will make a big difference.
Next, prioritize your payments. Notice that some of your debt, like credit card debt or some private student loans, accumulates interest at a higher rate. This means that you’re losing money at a faster rate until these loans are paid. Therefore, the best strategy is to pay the minimum on all loans, so as not to negatively impact your credit score, and then to pay off as much as you can on the loan with the highest interest.
Avoid using credit cards for everyday living expenses (there is an exception to this, see our article on building credit). If you can’t afford something in the given month, try factoring it into the budget for the following month and put away cash for it. If you can afford it, then buy it. Otherwise, keep saving money. Credit cards may seem handy, but they are actually the easiest way of falling into bad spending habits and accumulating massive amounts of debt.