1. Skip credit cards completely if you can. The average student graduates with more than $2,000 in credit card debt, and that’s a bad way to kick off your adult life. If at all possible, wait until senior year to get a credit card. Meanwhile, use a debit card instead.
2. Don’t get behind on your bills. Missing a payment not only means you’ll get hit with huge fees. You’ll also see your credit score—basically the GPA that follows you throughout your financial life—plunge. To get a free idea of your credit score, try creditkarma.com. One late payment also gives credit card companies an excuse to raise the interest rate on what you already owe as well as on any future purchases you make.
3. If you do have a credit card, pay more than the minimum. Staying on the payment schedule your lender sets can cost you thousands of dollars and years of your life. Say you owe $1,000 on a card that charges 18% interest. Paying just $10 more than the minimum every month will save you 13 years of repayment and $1,312.
4. Stick with low-rate federal student loans. You might’ve gotten private student loans in the past, but going forward, make sure you and your family get all the Stafford and PLUS loans you can before going to private lenders, which are currently charging interest rates of up to 14.5%.
5. Use the ATM no more than twice a week. Two or three dollars here or there may not sound like much, but if you’re using another bank’s cash machine all the time, those ATM fees can add up to hundreds of dollars a year. To add insult to injury, if you take out $20 every other day, it’s hard to figure out just where you’re really spending your money. Plan ahead and take out a fixed amount at the beginning of each week, and no more.
Graduating into the Recession:
Pointed Advice for Seniors
1. Find a job. With 2 million people in their early 20s looking for work, competition for entry-level jobs is fierce. Keep looking for your dream job, but take any offer that comes along in the meantime. And work harder than anyone else. This really gets noticed.
2. Move out of your parents’ house. Of course, my best advice is to live at home for a year and save as much as you can. But if that’s not an option, rental markets around the country are getting competitive, so negotiate. If you have a good credit score (see creditkarma.com), try to get a month or even a few weeks’ rent free.
3. Protect yourself from medical disaster. If you can’t find a job with benefits, you may be able to stay on your parents’ coverage until you’re 26; some states let you keep the family insurance through age 30. Otherwise, get a policy that covers major accidents or illnesses. So-called high-deductible short-term coverage tends to be the least expensive—sites like ehealthinsurance.com will provide quotes.
4. Make a budget. Sites like mint.com provide a lot of free information about your budget. Use them. Once you know exactly where every dollar goes, it’s a whole lot easier to figure out where you’re wasting money.
5. Tackle high-rate debt first. Although the amount you owe on your student loans is probably bigger, it makes the most sense to pay off your credit cards faster. If you need more cash to do that, call your servicer to extend your student loan repayment period, which will lower your monthly payments. And don’t forget: You can deduct $2,500 a year in student loan interest (not the amount you originally borrowed) on your taxes.