Graduating college students can often feel pressured and even overwhelmed by what could seem like mountains of never-ending debts. However, there is stress relief available for students and recent graduates who take the right steps towards a debt free future.
Two of the most common forms of debt for university students are study loans and credit card debt. The best course of action for alums is to make an escape plan before the problem worsens. Once resolved, graduates can begin using their money for more important expenses, include supporting their future families or purchasing a new home.
College Loans There are a variety of debts, with some carrying a more beneficial perception and others holding a more destructive potential for the individual. That said, there is a huge difference between college loans and credit card debt. The purpose behind the â€œgood debtâ€ of a college loan is to educate the graduate-to-be. The expectation is that the amount borrowed will be more than compensated for in future earnings. Students need not feel guilty about college loans, but they should know how to handle them.
Donâ€™t ignore it It is easy for college students to have the mentality that, â€œIf I donâ€™t see the debt, it doesnâ€™t exist.â€ However, ignoring the loans can shove a student into a deep hole. An individual that wants to pay off debt must take responsibility by knowing how much is owed, anticipating payment due dates, and being aware of the interest being charged for the loan. A debt can never be paid off if it isnâ€™t acknowledged.
Consolidate, consolidate, consolidate There are several advantages for those who choose to consolidate their student loans. One is to avoid the interest fluctuations of federal Stafford and Perkins type loans by locking in interest rates when they are low. Every July, rates reset on those kinds of loans, meaning that a student may end up paying more if the debt is not consolidated quickly. Last July, rates jumped up about 2%. That may not seem like much, but over the time of repayment, the student will pay nearly $2,000 more on a loan of around $20,000.
In addition to lower rates, students also have an easier task in paying their loans since they become one payment. A simple arrangement takes away part of the headache of managing several payments which may be forgotten if not careful.
Be selective Students should not be rash when choosing their consolidation lender. Some lenders may give some perks that others do not, such as a longer grace period before payment. Students hastily picking the first lender they see could lose hundreds of dollars. It is worth the extra time to research consolidators and save some cash. A great site for information on consolidators is www.ConsolidationComparison.com
Credit Card Debt Unlike college loans, credit card debt falls into the category of â€œbad debt.â€ Credit cards generally have a high interest rate that is difficult to pay off as well as other features that quickly suck away funds, such as fees for late payments. According to bankrate.com, the average credit card has a set interest rate of about 13% while a variable rate will average around 14%. Paying debts with rates that high could lead to uneasy situations. It is usually best to repay a balance before it becomes unmanageable.
Put Away the Plastic The best way to handle credit card problems is simple: stop using the credit card. It may seem obvious, but many do not understand how reliant they have become on credit card use. Graduates must take an active role, and immediately stop increasing their financial load, throwing away unneeded cards. Perhaps one card can be kept for emergencies, but it should be hidden away at the bottom of a trunk, or entrusted to a reliable friend. A young graduate can never be too careful when it comes to credit cards.
Lower the Rate Most college students do not realize that a quick phone call to the credit card company can lower their rates. Most companies want to keep their student clients, so they will often lower the rate of the card if asked. This does not take much effort and could save a significant amount of money. The worst that can happen is that the company says no.
Transfer the Balance It will often be helpful to transfer the balance of one credit card to a new one. Credit card companies offer no-interest introductory rates that offer immediate savings. Some cards offer benefits such as lower rates and more lenient regulations compared to others.
Students should be cautious when switching cards, making sure to read the fine print. A new card may have a lower interest rate than a current card, but a large annual fee may offset the benefit of the decreased interest. Students must look at all aspects of the card - including interest rates, fees, penalty costs - and do a quick calculation to see if the switch will help.
Switching cards continually is not advised, however. Jumping from one card to the next often will worsen a personâ€™s credit history, scaring off companies with the impression that the cardholder will quickly jump ship. Creditors could stop offering good bargains and hike up their rates.
No Unnecessary Spending Students should also cut down on reckless spending by asking themselves, â€œDo I really need this?â€ If the answer is â€˜noâ€™ the buyer should put off the purchase. Of course cutting spending doesnâ€™t mean doing away with necessities. A student eating less to have more money for the movies should change priorities. Entertainment is not a trade off for malnutrition.
A student that chooses to be smart with debt will make those loans disappear before they become an overwhelming source of stress.