College Graduates New To Focus On Life 101
But you can lower your monthly payments by extending your payment plan with a fixed annual or graduated repayment amount over a period not to exceed 25 years—though you’ll ultimately pay more for your loan because of the interest that accumulates during the longer repayment period.
If that’s not enough, you may qualify for deferment, which allows you to temporarily suspend payments on your loan due to unemployment, economic hardship or re-enrollment in school.
Forbearance is also another option for those who qualify, which is a temporary postponement or reduction of payments for a period of time because of financial difficulty.
And finally, there’s the income-based repayment, IBR, plan, which sets payment caps based on your income and family size.
Each repayment plan has its own eligibility requirements.
Emergency Savings Fund?
As you dig your way out of debt, you should also start building an emergency fund for bouts of unemployment or unexpected medical expenses down the road.
But different schools of thought exist on how you should save.
Some financial planners suggest putting an immediate $1,000 away into an emergency fund to create a financial safety net and then paying off your credit card debt.
At that point, they suggest, you can refocus your efforts on building your emergency fund even higher.
Others, Boyce included, disagree.
“I say you’ve got to get out of credit card debt before you can start saving,” she says. “Technically, you are still a saver when you’re paying off debt. You’re saving yourself all those interest payments.”
Whatever approach you choose, your ultimate goal is to save three to six months worth of living expenses into a liquid (accessible) interest bearing account, like a money market fund, or CD – up to a year’s worth if your job security is in question.
While retirement may seem like a low priority, given your age and financial plight, it’s important to get into the habit of saving right away, notes Ginsburg.
At the very least, contribute enough to get the employer match if one is offered at your job – lest you leave free money on the table.
“They need to become accustomed to saving no less than 10 percent of their gross compensation and making sure their lifestyle is structured so they can live on 90 percent of their after tax compensation,” says Ginsburg. “Even with all the ups and downs of the financial market, the power of compounding is enormous when you start saving early.”
As you begin the next chapter of your life, remember, the goal is financial freedom.
By developing good spending habits now, you’ll be giving yourself the gift of an angst-free future—at least where money management is concerned.
“Consistency of financial behavior will enable these young people to move towards financial independence,” says Ginsburg.