If you -- or one of your kids -- are about to graduate from college or high school, congratulations on successfully navigating the twists and turns of the education system. You don't need me to tell you what a challenging, rewarding and expensive road it has been.
But, as someone who's learned a few financial lessons the hard way, I would like to share a few steps you can take now to ensure you'll start the next chapter of life on sound economic footing.
First, live within your means. The temptation to go on a spending spree after landing your first full-time job can be overwhelming. But if you're a college grad, unless you sailed through on a full scholarship, you're probably already saddled with thousands of dollars in student loan debt. (If you're about to enter college, avoiding future loan debt is something to keep in mind.) Add in rent, car payments, credit card and personal loan balances and all your other monthly bills -- not to mention payroll taxes -- and your new salary may not go as far as you'd hoped.
If you don't already have a budget, get started on one now. Numerous free budgeting tools, including interactive budget calculators, are available online at sites such as the U.S. Financial Literacy and Education Commission's MyMoney.gov, the National Foundation for Credit Counseling, Mint.com and Practical Money Skills for Life, a free personal financial management program run by my employer, Visa Inc.
- Most federal loans offer six- or nine-month grace periods before repayment must begin, but many private loans do not. Carefully review your loan documents to see where you stand.
- Ask if your lender will reduce the interest rate if you agree to automatic monthly payments or after you've made a certain number of on-time payments.
- If you anticipate repayment difficulties, contact your lender immediately to try and work out an agreement to defer payments, extend the loan's term or refinance at a lower rate.
- Many people with federal loans who are low-income, unemployed or working at low-paying, "public service" jobs in education, government or non-profits qualify for income-based repayment, where monthly payments are capped relative to adjusted gross income, family size and state of residence. To learn more, visit this Department of Education FAQ or read my previous blog, Federal Student Loan Changes.
- Also, read IRS Publication 970 for information on deducting student loan interest from federal income tax. In some instances, you can deduct up to $2,500 in interest even if you don't itemize deductions.
Know the score, credit-wise. Many people don't realize the impact their credit score has on their financial future until after it's been seriously damaged from making late payments, bouncing checks, opening too many accounts or exceeding credit limits. This can haunt you later when you try to borrow money for a house or car, rent an apartment or apply for a job (many landlords and employers now check credit records and reject applicants with poor credit).
Find out where you stand by ordering credit reports from each major credit bureau - Equifax, Experian and TransUnion.You can order one free credit report per year from each bureau from AnnualCreditReport.com; otherwise you'll pay a small fee to each bureau directly.
To learn more about the importance of understanding and improving your credit score, visit What's My Score, a financial literacy program for young adults run by my employer, Visa Inc. It features a free, downloadable workbook called Money 101: A Crash Course in Better Money Management, a free tool to estimate your FICO credit score and Welcome to the Real World money guides on topics such as student loan repayment, finding a job, paperwork and taxes, and budgeting.
Jumpstart your job search. You've probably already held a variety of jobs to help pay for college. Now it's time to find a position in your field of study. Start with your school's career counselors, who often provide services to alumni or will at least point you to other resources.
While researching jobs and career paths, polish your resume. Make sure yours accurately reflects your accomplishments and shows potential employers you have the experience, drive and qualifications they seek. Use concise, strong language and an organized appearance.
Don't discount the importance of networking with family, friends, former school contacts, business and social organizations -- basically anyone who might know of openings in your field. If you find a potential employer you admire, inquire about internships as a way to get your foot in the door. For more tips, see my previous blog, Online Job Search Tools.
You've worked hard to earn your degree; now put it to work for you. Just make sure you don't sabotage your efforts by starting out on the wrong financial footing.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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