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Financial Advice for College Graduates in Debt

Matt Cullen

From student loans to snowballing credit card balances, many of today's college graduates are heading out into the real world with a pile of debt already on their plate—and they are unsure of how to get rid of it. Couple that with a still shaky job market left over from the recent recession, and it can seem nearly impossible to get ahead financially.

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Even if you are exiting academia in debt, there is some good news. There are ways to help alleviate the debt balance that you're currently carrying, as well as to help prevent additional debt obligations from racking up in the future. By following the tips below, you can help to keep yourself from becoming a long term slave to debt, and to live a more stress free financial lifestyle.

Tips for Easing Debt Now & Preventing Additional Debt Later

When just starting out, it may seem like you are faced with all sorts of new expenses. Rent, utilities, insurance—the list goes on. But by keeping your costs in check with your income, and by living within your means, you will be able to get by, even if it means forgoing some of the finer things in life for a while.

Your Credit Score is As Important - or Possibly More - Than Your College Degree

One of the first things that you will need to be mindful of is your credit score. As you go through life, you will be rated based on your timeliness and your ability to repay your debt. This rating is what is known as your credit score, and it can have a tremendous impact on whether you are able to borrow more money in the future at a favorable interest rate, or even at all.

Your credit score is based on a number of different factors, including your financial history, your timeliness in paying your debts, the total amount of debt that you carry in relation to your income, and the type of debt that you owe.

Although it may not seem important, the truth is that roughly 80 percent of all financial institutions and lenders will use your credit score when making their lending decisions. In addition to financial organizations, there are a number of other institutions that are starting to base their decisions on your credit score. These include:

  • Employers - Today, many potential employers will check your credit score as an indication of whether or not you are able to manage money. This can be especially pertinent if you are applying for jobs that involve the handling of cash.
  • Landlords - Many landlords and rental property owners also check the credit scores of potential tenants prior to renting them a house or apartment. Without a good credit score, it is possible that you may need to have a co-signer in order to be approved for a lease.
  • Insurance Companies - Credit scores can also have an effect on the amount of premium that you pay for insurance coverage. Those who have lower credit scores are oftentimes seen by insurance companies as less responsible, and will therefore be charged higher insurance premiums. This can be a difficult situation because insurance is something you need, especially when its required by state laws.
  • Cell Phone Companies - Today, even cell phone companies are apt to check one's credit score prior to signing a new contract.

With all of this in mind, it is essential to ensure that student loans and other debts are paid in a timely manner. If you find that you are struggling with debt, it is best to work with your creditors as soon as possible to negotiate alternate payment arrangements, rather than letting the debt go unpaid or spiral out of control.

Saving Money Now Can Prevent Debt Issues Later

In addition to keeping debts paid on time, it is also important to keep at least some liquid emergency savings on hand. Although it may seem like a tough task, by saving money now and building up an emergency fund, you will be able to prevent yourself from going into additional debt down the road.

Ideally, an emergency fund should contain between three and six months worth of living expenses. This way, should you go without income for a prolonged period of time, you will have a financial cushion to sustain you for longer than just a few days or weeks.

Having an ample emergency fund can help you to eliminate the never ending circle of taking on more debt to pay for emergency expenses, only to be saddled again with high interest payments every month and the threat of a lower credit score if you're late on a payment.

By ensuring that you keep your debt in check and make your payments on time, you will eventually be able  to pay off your loans and enjoy more

">financial freedom— especially if you've maintained a healthy credit score.

Photo credit (top image): Nazareth College