Fred Harteis News Articles - A grad's guide to fiscal fitness

Fred Harteis News Articles - Graduating from college is the easy part. Landing that first job, creating a budget, securing the first real-world apartment, paying off those student loans and somehow managing to stash cash in a retirement account? That's going to require more than a degree.

For the generation of grads just entering the job market, the debt outlook is bleak. According to FinAid.org, the average student graduates from a four-year institution with nearly $20,000 in student loan debt (the Project on Student Debt reports that one-quarter of all four-year students turn the tassel with more than $25,000 in loans not including funds borrowed in a parents' name). Tack on an additional $2,100 or more in credit card debt that, according to Nellie Mae, the average student leaves campus with, and the typical college graduate is looking at a mountain of debt before sitting down at the desk at the first job.

With such hefty economic obstacles in their path, it's crucial for recent graduates to manage their debt wisely and take active steps to create a healthy financial future.

Plan ahead
The best way to get a leg up on debt is to start earning capital as soon as possible. Graduates with federal Stafford loans have a mere six months after school ends to become financially stable before that first loan payment is due, and those with federal Perkins loans have a nine-month grace period. Students with private loans, however, may need to begin repayment immediately upon graduation or risk falling into delinquency.

Prioritize your payments
Tamara Draut, author and director of the economic opportunity program at Demos, points out that many recent graduates don't realize that not all debts are created equal. "The problem is that there's so much pressure," she states. "There's a lot of competing priorities, paying the rent, paying the student loan bill, paying the credit card bill. It can be overwhelming and frustrating."

While many students tend to focus on paying off their student loan first, Draut says that it's fiscally advantageous to prioritize your debt, placing credit cards and car loans with high interest rates ahead of student loans with lower or capped rates. Students with significant credit card debt should also consider asking their student-loan lender about deferring or lowering their loan payments until the credit cards are under control.

Consider consolidation
One way to reduce those monthly payments is to consolidate your federal loans, trading in multiple loans for one, longer-term loan with lower payment increments. According to Sallie Mae, consolidation can reduce monthly payments for federal loans up to 53 percent, giving recent grads more capital to put toward rent, car payments and savings.

"If students have a lot of different loans and they're making multiple payments, it makes sense to consolidate those loans and make one monthly payment," states Staci Shiller, marketing program manager for Wells Fargo Education Financial Services. "It's a good way to get organized if you're trying to get yourself established."

Shiller says that rather than focusing on shortening the overall length of the loan, recent grads should instead work with their lender to create a sensible payment plan, one that can consistently be met each month without neglecting other financial obligations.

"Starting out with a lower monthly payment is a good option for somebody who is just entering the workforce," she says. "As they move up in their jobs, grads can throw more money at that loan since (federal) student loans don't have a prepayment penalty."


Pay on time, all the time
Think missing a loan payment is no big deal? Think again. Missing or sending in just one student loan payment late can cost you thousands in fees, penalties and terminated loan benefits as well as affect your credit score.

Grads who miss their payments by more than a few days (270 for federal loans) are considered in default and face even harsher consequences, including wage garnishment, garnishment of federal and state income tax refunds, withheld Social Security benefits and severe credit repercussions.

Pay yourself too
Managing your student loans is only one part of the financial equation. To truly set up for a healthy, long-term fiscal future, grads also need to pay themselves, storing approximately 10 percent to 15 percent of their salary in a long-term savings or retirement account, says Doug Charney, senior vice president of Wachovia Securities. "The number one mistake recent graduates make is they don't participate in their employer's retirement plan," Charney says. "Most 401(k)s have employer matching on their first six percent. Not participating is kind of like saying, 'I don't want a raise.'"

Norman Mindel, executive vice president for Genworth Financial, agrees, stating that 401(k)s not only offer significant tax breaks, they also offer better returns than most savings vehicles available to recent graduates. "If you put a dollar in, you might save 25 cents in taxes. If your employer matches by another 10 cents, you have a 35 percent return on your money," he says. "A 401(k) is free money."

Find Your Financial Teammates
Grads can, but don't necessarily have to, attack the world of money management alone, says Charney. A personal financial adviser can help you create a manageable investment strategy that will keep your debt in check.

"A financial adviser can help you maximize your 401(k), help you set up your IRA, set up investment accounts for emergency spending and understand the vehicles that can help you get ahead," Charney says. He notes that investors between the ages of 20 and 30 can benefit because typically those are the years when investors have the fewest fiscal responsibilities, the most disposable income and the most time on their side when it comes to long-term investments.

The drawback to having a personal financial planner is that they cost money, usually a flat fee of $75 to $200 per hour or 1 percent to 3 percent of the value of your invested assets. For those who prefer to attack the money management beast on their own, personal finance software such as Quicken or MS Money can help recent grads create a monthly budget. Also, using an automatic online bill-pay system can ensure that all major expenses get paid before you have time to blow it on a night on the town.

Source; Bankrate.com

About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures.