Most college students have to deal with debt — from car payments and student loans to credit card bills and phone plans. With so many expenses, students may have trouble knowing how to manage their money.
As a young adult, you have the unique opportunity to start organizing your finances before you enter the workforce full time. Discovering how to manage your debts before graduating from college will set you up for financial success and help prevent additional stress.
Here are five ways you can manage your finances and overcome debt.
1. Stay Organized – It can be mentally challenging to manage bills and due dates without a physical list. Keep track of all your debts and include the total amount, lender, due date and monthly payment. This provides a visual reference and helps you not miss payments.
Missing a loan payment will negatively affect your credit score. Without an acceptable credit score, you might have difficulty finding a place to live or getting approved for loans. Additionally, missing a payment may result in a late fee and increased interest rates, so it’s important you stay organized and on track.
2. Plan for Repaying Loans – Two major sources of debt for students are education and personal loans. Most student loan providers defer payments until after you graduate; however, it is wise to start paying off your loans while you’re still in school. Your servicer should provide you with repayment plans for both personal and education loans. Make sure to monitor interest rates and payment dates as they vary depending on the loan.
One way to begin paying off your student debt is to start with the largest loan that has the most interest. This allows you to save more money in the long run and redirect funds to other expenses. However, you may find it more manageable to pay off the smallest debt first and work your way up. Tackling smaller debts can build confidence and motivate you to keep working toward paying off larger loans. There are benefits and setbacks to both approaches, so spend time considering which will work best for achieving your goals.
3. Have an Emergency Fund – Financial advisor Dave Ramsey suggests putting aside $1,000 into an emergency fund. Having an emergency fund allows you to prepare for unplanned car maintenance, medical expenses and tech repairs.
Putting money aside for these issues provides financial security and protects your savings. It ensures that you will have the necessary funds to pay your bills and cover unexpected emergencies, helping you feel more secure and prepared for the future.
4. Stick to a Budget – One of the best ways to manage your money is to stick to a budget. Budgeting your money doesn’t mean that you won’t ever get to do anything fun – it simply helps you plan how you will manage your income. A budget allows you to have money for what you enjoy and still cover your expenses.
First, start with your income. Look at how much money you will have coming in and then list your expenses. Be sure to include additional costs like gas, groceries and housing. Once you have an idea of your monthly expenses, subtract that from your income. From there, you can see how much money you will have left over to spend. Be sure to put some money into savings and contribute to your emergency fund and student loans.
5. Speak to a Specialist – It can be challenging to choose the best plan to pay off your debt and stay financially organized. If you are struggling with understanding your student loans, consider talking to one of your school’s financial aid advisors. You may even want to enroll in a personal finance course at your school.
Private companies can also help you navigate your debt and construct plans that will help you become debt-free. Many financial sites offer free budgeting tools and debt payment plans, including Dave Ramsey’s website and Intuit’s free app, Mint. Be sure to visit your loan provider’s website as well for advice and payment options.
Becoming debt-free can be difficult, but it’s not impossible. Don’t let the process overwhelm you and keep you from getting a head start organizing your finances. If you already have a plan before graduating, you are putting yourself in the best position to become financially successful. Educating yourself on financial topics and conversing with a specialist will give you confidence when making decisions for your future.