Graduating from college is one of the biggest milestones in a young adult’s life. And most young people are excited to start their adult life and careers. But life after graduation has its challenges. For some graduates, this is their first experience managing personal finances. And unfortunately, they often make a few post-grad money mistakes.
Managing our finances can be a matter of trial and error. Although you might make mistakes and bounce back, there are ways to reduce money blunders after leaving college.
1. Defaulting on Student Loans
Student loan repayment usually begins within 6 to 9 months after graduating. This gives graduates time to find a job and adjust to new expenses. But even with a job, some graduates have difficulty paying their student loans. If you’re experiencing payment problems, don’t skip or miss payments.
Defaulting on student loan debt can damage your credit score and this delinquency can stay on your credit report for up to seven years. Your best bet is to call your student loan provider and ask about hardship provisions. You might be eligible for deferment or forbearance, which temporarily suspends monthly payments for a certain number of months, or you might qualify for a payment reduction.
2. Unnecessarily Pushing Back Repayment
Although there’s the option to push back student loan repayment with a forbearance, this provision can be costly. You’re not required to make monthly payments during the forbearance period, but interest continues to accrue each month.
If possible, make interest payments during the forbearance period to avoid increasing your student loan debt. I knew someone who graduated with $14,000 in student loan debt. However, she pushed back repayment for five years, and by the time she made her first payment, her student debt balance had increased to $20,000.
3. Not Inquiring About Loan Forgiveness
If you have a federal student loan, you might qualify for student loan forgiveness. You have to make at least 120 timely payments to be eligible, and only certain occupations qualify for student loan forgiveness. These include occupations in public service, such as law-enforcement, health, teaching, and military service people may qualify for loan forgiveness. For more information, visit the Federal Student Aid website.
4. Moving Out Too Soon
Understandably, you’re ready to move out of your parents’ home. But there are benefits to living at home after graduation. Your parents might charge less rent than a landlord. Therefore, you can pay off credit card debt, pay down your student loan or build a cash cushion.
5. Not Saving for Retirement
You might be in your 20s, but that doesn’t mean you can’t start thinking about retirement. Actually, this is the perfect time to start saving for retirement. If you live at home with your parents or have few financial responsibilities, you can start a 401(k) through your employer or open an individual retirement account and contribute the max allowed each year. Even if you have to decrease your contributions later as you take on additional financial responsibilities, at least you’ll get a jump start after graduation.
6. Thinking You Don't Need Health Insurance
It doesn’t matter if you’re young and healthy, everyone needs health insurance. It only takes one health crisis to wipe out your savings account or leave you with a ton of medical debt. Join your employer’s group health plan once you’re eligible, or purchase health insurance on the individual market. Even if you can’t afford the best coverage, something is better than nothing.
Just about everyone has made at least one money mistake in their life. We aren’t given a handbook instructing us how to manage our personal finances. But if you can minimize money mistakes after graduating, you can build a firm financial foundation for yourself.
What other money mistakes should graduates avoid? Let us know in the comments box below