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Posted 06.17.04 Watch Your Wallet, Grads; Those Debts Can Pile Up The Wall Street Journal Sunday (May 25, 2003) By Aleksandra Todorova This spring, seniors are graduating from college with an average of $3,000 in credit-card debt, according to Cardweb.com, a Web site that provides information about payment cards. Add roughly $17,000 in student loans, according to a 2000 survey by the National Center for Education Statistics. Throw in the worst job market since the early 1990s, and you have a lot of college grads who need to learn the financial ropes. First of all, relax. "Student-loan debt isn't something people need to worry about scrambling to pay off," says Peter Bielagus, a Bedford, N.H., financial consultant and the author of "Getting Loaded: A Financial Guide for Students and Young Professionals." "The interest rates are typically very favorable." And student-loan interest is tax-deductible up to $2,500 a year. Here are five things you can do to get a financial grip. 1. Consolidate Student Loans Grads who expect a few lean years should consider consolidating student loans. Rates on federal loans are already low and on July 1 they're expected to fall to 2.8%, the lowest in 37 years, says Mark Oleson, director of the Financial Counseling Clinic at Iowa State University. This expected low rate is for those who consolidate in the "grace period" (usually the six to nine months after graduation). For those who consolidate after they've started repaying loans, the new rate is expected to be 3.4%. Often you can cut the rate even more by signing up for automatic payments with your state's federal consolidation program. Discounts vary by state. So do qualification rules (typically, students can consolidate through the state where they attended school). The new consolidation rates will be announced by May 30. If they do turn out lower than current rates, grads should wait till July 1 to take advantage; otherwise, they should mail applications before July 1. 2. Pay Down Those Credit Cards "If you're making $25,000 a year, it's really hard, but there are ways to economize," says Jason Anthony, a "self-taught" debt whittler and author who says he got rid of $15,000 in credit-card debt plus $15,000 in student loans by age 29. Cut out the $5 lattes and other small, unnecessary costs. If you have several cards, consider consolidating to one low-rate card, says Mr. Anthony. This can cut monthly out-of-pocket costs and make debt easier to monitor. But put the savings toward repaying debt, or you'll just extend the pain. 3. Take the 401(k) Plunge What you save on the job now will have a big impact on your retirement. "The joys of compound interest cannot be overstated," says Mr. Anthony. "People who start planning in their 30s have a lot of catching up to do." If you can put aside just $50 a month in a 401(k) or IRA you're off to a good start, he says, especially if the employer offers a generous match. If the contributions total just $2,000 a year, earning 9% annually, you'll have $1 million after 45 years -- though you invested only $90,000, says certified financial planner Dee Lee, Harvard, Mass. 4. Set Up a Rainy-Day Fund Once debt is under control, you'll want a small emergency cash fund. Ideally, it should be three to six months' worth of living expenses held in an easy-to-tap account such as a money-market fund. The easiest way is to ask your bank to automatically transfer $50 or so a month to a money-market fund. At the very least, clear enough room on your credit cards so you can charge an emergency cost (something like a medical bill, not a fashion emergency). 5. Exploit Every Tax Break Remember to benefit from as many of Uncle Sam's tax rules as you can. Keep receipts if you're moving for your job, because the costs may be deductible. To qualify, the distance between your new primary job and former home must be at least 50 miles. The IRS generally considers your "former home" to be your parents' home. |
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