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Keep College Debt From Crippling You Further: Tips For New Grads On A Tight Budget

two men shaking handsAlthough there are many ways that student loans are jeopardizing our future, that does not mean we should take it lying down. If you graduated from school with a lot of college debt, you know that you only have 6 months of freedom before the bills start coming in. After that, you can expect a decades worth of student loan payments that will eat up your hard earned money.

As bad as that may sound, it is not as alarming as the current situation of our student debt crisis. According to the NYTimes.com, as the mortgage and credit card debt delinquencies go down, the student loans continue to rise. But even as more and more people fail to pay their college debt, the loans are still being distributed without really improving the system that will determine repayment capabilities.

This scenario leads to a tough beginning for our new graduates. It is not unlikely that a lot of them are forced into a tight budget that will keep them from grabbing financial opportunities. If you are a new graduate and you can relate to this problem, then you should know that there is a way for you to keep your student loans from endangering your future. That being said, let us discuss the three important things that you need to look into so you can achieve financial independence.

How to set up your budget to pay off your student loans

First is setting up your budget. If you never heard or used this while you were in college, this is your wake up call. One of the reasons why you are in debt is probably because you failed to budget your money.

If you did not know, budgeting is another way to get out of debt. Regardless if you are currently employed or still looking for a job, you may want to start working on this budget before your college debt bills start knocking on your door. Here are some tips for you to set up a budget plan on a tight budget.

  • Determine your frugal budget. This basically means you have to know the amount of money that you need to have to pay for your most basic necessities. Think of it as your baseline budget. When we say basic, that means food that is eaten inside the house and prepared by you. While you may not like the sound of frugality, you really have no choice about it. Besides, you do not have to use this – at least not yet.

  • Think of what else you can cut. Setting aside your baseline budget, look at your other expenses and see what else you can cut back on. Do you really need to have a mobile plan or will a prepaid plan serve your communication requirements? Is that gym memberships really necessary or can you terminate that and just utilize what you can exercise on for free? If you think that your parents will not mind, check if you can move back in while you are trying to strengthen your financial position. You will still contribute at home but at least, it will not be as costly as when you are living on your own.

  • Work on a source of income. If you are still looking for a full time job and you are finding it hard to land one, settle for a part time job or some freelance work to get by financially. You can do online jobs or you can continue the college part time jobs that you used to have. If you are lucky enough to look find a job at this point, scrutinize your income to see how your trimmed expenses measure up to it.

  • Create a budget that give you a lot of room for your college debt payments. Consider your baseline budget, the expenses that you can cut back on and your income. Then, you need to look at your student loans and determine how you can maximize the money that you will contribute to your debts. This is when you decide if you should implement your frugal budget plan or not.

Build up your emergency fund despite the huge loan payments

After working on your budget, you need to turn your eyes towards your emergency fund. Most new graduates do not have an emergency fund because they know that they still had the financial support of their parents. But now that you have graduated, that is no longer the case. You need to start asking the basic questions that will help you compute your emergency fund target.

An emergency fund is important because it will help tide you over the difficult times without putting yourself in debt. You should not wait for the unexpected before you start thinking about your reserve fund. Here are some tips for you to build up your emergency fund despite the college debt that you have to pay and your limited budget.

  • Set realistic goals. No matter if your goals are big or small, it can really help you focus and also raises the chances of your meeting your targets. Think about the amount that you want to save up for and come up with a plan to meet that. Use your budget as reference of what you can and cannot afford.

  • Tell others about your plans. It can be a close friend, your special someone or your family. When you tell someone about a goal that you want to reach, the embarrassment of failing is one motivation that will push you to reach your goal.

  • Adapt a cash only policy. Given your limited resources, you want to make sure that you will never go beyond your budget. Adapting a cash only policy will ensure that you will not spend beyond your means.

  • Put aside money – even if it is small. Do not be discouraged if it turns out that you can only save a small amount at a time. Saving dimes is better than nothing. Soon, that money will grow bigger – at least if you stay true to your savings.

  • Look for a part time job. In case you already have a job and it is still not enough, you may want to get a part time job. We’ve mentioned freelancing as an option that you can do. Why not explore that option.

  • Sell the stuff you do not need. If you have postponed it until now, you should start thinking about selling the things that you had in college that you do not need anymore. Anything that you get from the sale has to go to your emergency fund – 100%.

  • Do not forget your tax refund. According to an article published on Forbes.com, there are 1 million taxpayers who failed to file their tax returns. This makes them unqualified to claim their tax refund. The current unclaimed tax refunds in 2010 is $760 million. The article mentioned that most of the people who failed to get their tax refund are students and part time workers. This is your money so make sure that you can claim it.

Tips to pay off your student loan debt

Once you have your set up your budget and started on your emergency fund, it is time for you to focus your attention on demolishing your student loan debt. In fact, this should never be put in the backseat. Before you commit to a home loan or a car loan, you need to seriously pay down your college debt first.

Here are 5 things that you need to know to help you pay off your student debts.

  • Know your loan. Find out how much you owe and who you owe it too. Keep track of everything especially when you have a lot of lenders. You do not want to get confused and fail to pay one lender.

  • Know your finances. You need to review your budget and find out the maximum amount that you can use to pay your monthly student loans. Remember that you need to pay more as much as possible. A college debt payment usually goes to the late charges, then interest rates and last on your principal debt amount. If you pay more than the required amount, you get to eat up a portion of that principal amount.

  • Know your options. It is also important to know your payment options like the pay as you earn or income based repayment plan. You will know more about these options if you visit StudentAid.ed.gov. Make sure you get a repayment plan that your current income can afford.

  • Know your rights. If you landed in the right industry, you may be qualified to avail of the Public Service Loan Forgiveness program.

  • Know where to get help. Being a new graduate will make you feel disconcerted at some point when it comes to your finances. This is the time when hiring a professional to help you out can really make a huge difference in your pursuit to pay off your college debt.

If you need any assistance with your student loans, National Debt Relief has a federal student loan product that provides consultation services to consumers who are burdened with college debt. This service includes the analysis of the consumer’s financial, student loan and employment situations. The company will then advise the consumer on what program they are qualified to use to pay off their debts faster. The service includes assistance in preparing the documents that will help borrowers enter the appropriate program. The service charges a one time flat fee that is secured in an escrow account. National Debt Relief will not withdraw this amount unless the consumer is satisfied with the paperwork done on their behalf. This performance based payment means that if the consumer does not get into a program, the company will not get paid. There is no maintenance fee or any upfront fees to be charged to the consumer.

By Diana Roberts
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.

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