Those hefty student loan bills from school, which are at an all-time high, have put a severe strain on most recent graduates’ financial circumstances. A whopping 87% of millennials said they’d been broke in the past or were currently broke, according to a separate survey by CreditLoan.
Abril Hunt, outreach manager at Educational Credit Management Corp., or ECMC, a nonprofit dedicated to helping student borrowers, offers the following tips on the road to financial independence for those just starting out and facing student loan payments, in addition to other expenses:1. Build a budget
For starters, don’t “put the cart before the horse,” Hunt said. “Your income determines your lifestyle, so figure out all your expenses and expected take-home pay,” she added, if you have a job after graduation.
“Look at how much money you’ll make and adjust your lifestyle accordingly,” she said.
For example, if you’re earning $32,000 a year, that leaves $2,238 in take-home pay each month after taxes, according to Hunt’s hypothetical. A good rule of thumb is to spend no more than 30% of income on housing, Hunt said. She also advises saving for retirement as well as building an emergency fund.Be aware of the many repayment options, and understand you can switch between plans if necessary.Abril HuntOUTREACH MANAGER AT EDUCATIONAL CREDIT MANAGEMENT CORP.
“If you don’t think about retirement, you’ll be scrambling later on,” Hunt said. From there, you can determine how much you can afford in rent or how often you can eat out. See her budget breakdown for that $2,238 a month below:
- $223.80, or 10%, to student loan payments. (10% of your income is the standard repayment amount income-based repayment plans.)
- $335.70, or 15%, to groceries
- $223.80, or 10%, to retirement savings
- $223.80, or 10%, to transportation, including gas, car payments and insurance
- $223.80, or 10%, to an emergency fund
- $671.40, or 30%, to housing
- $335.70, or 15%, on discretionary spending, such as clothes, eating out, gym memberships and travel
Find a job
“Be practical,” Hunt said. You’ll want a revenue stream coming in even while you are hunting for the perfect position, so take something short term to pay the bills while you are looking for your dream job, she said.
To that end, regardless of your age or lack of experience, when it comes to landing a sought-after gig in today’s market, networking is still your best bet, experts say.
In the meantime, take steps to cut costs, such as canceling a gym membership you don’t use, scaling back food and clothing purchases to the bare necessities and opting for free entertainment until your income picks up.3. Start paying back your student loans
The good news for graduates is that, for federal loans, which make up the bulk of student debt, there is generally a six-month grace period after graduation that gives borrowers time to get on their feet before they have to start repaying their college debt.
However, even though payment is not required during the grace period, interest continues to accrue, so consider starting your payments as soon as you can, Hunt said.
By default, you are likely in a 10-year standard repayment plan but there are other options, including pay-as-you-earn or income-based repayment.
“Be aware of the many repayment options, and understand you can switch between plans if necessary,” Hunt said.