The New Grad's Guide to Debt Management


According to Student Loan Hero, the average 2016 graduate left college with $37,172 in student loan debt. The class of 2017 will graduate owing roughly the same amount, if not more.

For many young adults, a student loan is the only option for obtaining a degree. The problem, however, is that it takes years to pay off these balances. Some graduates also have difficulty juggling student debt with their other expenses.

Luckily, student loan debt doesn't have to cripple a new grad's finances. Here are a few strategies to help graduates manage their debt and stay on track.

1. Get organized and prepared for that first bill

Student loan repayment typically begins six to nine months after graduating college. You'll likely receive information regarding your first payment in advance. If you haven't received this information yet, it doesn't hurt to contact your student loan lender to ask about your due date and minimum payment. Having this information early helps you prepare your budget ahead of time.

To stay organized and avoid late payments, set up automatic reminders a few days before your student loan payments are due. If you have multiple lenders, look into consolidating all your loans into a single loan. This way, you don't have to juggle multiple payments and due dates. If consolidation isn't an option, contact your lenders to see if you're allowed to change your due dates. It might be easier to manage student debt when due dates are within a few days of each other. (See also: What's the Difference Between Student Loan Refinancing and Consolidation?)

2. Sign up for autopay to stay on schedule

Signing up for autopay is one way to avoid missing a due date on your student loans, which can trigger a late fee or a negative mark on your credit report. With autopay, your student loan lender automatically drafts monthly payments from your checking or savings account on a specific day of the month. As a bonus, your lender may reduce your interest rate when you agree to automated payments. This results in paying less interest over the life of the loan.

Of course, the key to making this a successful solution is ensuring that there's always enough money in your checking account to cover the deductions — something you'll really need to stay on top of.

3. Request forbearance if you need more time

If you're scheduled to begin repaying your student loan, but you don't have enough income, don't ignore the bills. Student loan lenders — especially federal lenders — are flexible and offer assistance to students requiring financial help.

One provision is forbearance, which allows you to temporarily suspend student loan payments for a certain number of months. For example, request a one-month forbearance if you have a temporary hardship, or request a one-year forbearance if you experience longer financial troubles. Keep in mind that interest continues to accrue with forbearance, which can put you deeper in the hole. Only use this option as a last resort.

Deferment, on the other hand, is an income-based hardship provision. This option works the same as forbearance in that it suspends monthly payments without penalty. With a deferment, however, the federal government pays the interest that accrues during this period. (See also: 4 Things You Need to Know About Deferring Student Loans)

4. Deduct student loan interest

Student loan interest is a deductible expense, so remember to include this item when filing your income taxes. This is critical in cutting your tax liability, especially when you're already on a tight budget. Since it's an "above-the-line deduction," you don't have to itemize your tax return to take advantage of this write-off. You're allowed to write off up to $2,500 of student loan interest paid annually. This will reduce how much you owe in federal and state taxes. (See also: 4 Ways Student Loans Impact Your Taxes)

5. Hold off on other types of financing

After finishing college, you're likely ready to get your "adult" life started. This might include buying a new car and furnishing an apartment. But since you're fresh out of school with student loan debt, try to hold off on other types of financing — at least for now.

The more debt you acquire, the harder it might be to juggle student loan and other credit payments. If you can avoid a car loan and unnecessary credit card debt, the money you would have spent on these expenses can go toward paying down student loan debt.

6. Live at home

The financial decisions you make as a young adult can affect your life later on. Although your friends might move into their own apartments, buy new cars, and spend most of their money on fun stuff, consider the benefits of living at home after graduation. By doing so, there's an opportunity to put a major dent in your debt. I did it for two years immediately following college, and I wasn't even a little bit embarrassed about it; I've paid off two student loans as a result.

Whether you have credit card debt or student loan debt, minimizing your expenses now and prioritizing debt elimination sets the foundation for a strong financial future. Not only should you pay off debt, you should use this time to build a solid emergency fund. It'll be easier to save money and get ahead financially when you commit to living as cheaply as possible. (See also: 8 Surprising Ways to Pay Off Your Student Loans)

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