Asked & Answered

Deep in Debt, Just Out of College

Q - I just graduated, but now I have $20,000 in student loans and a $30,000 job. How am I supposed to eat, much less start saving?

A - Welcome to life after college in the 21st century, where entry-level jobs meet larger than life student loans. Your first step is create a spending plan, a.k.a. budget. (You can get a budget spreadsheet from our website by clicking here.) The key is to see what all of your required minimum payments are, including the college debt to see if you have enough just to make your payments. Assuming you do not, then your first step is to talk to your lender about getting a deferment, which will allow you to delay making payments on your college debt for another year or so (check your lender for details). The bad news is that you may be accruing interest, meaning that your debt amount will get larger while you are not paying on it, since the interest will be added to the loan amount. The good news is that you may now have some breathing room.

Of course, even if you have enough to cover your payments, you may have nothing left for food, gas, clothing, etc. In this instance, you may want to consider graduated payments. This will allow you to pay less the first few years (while your income is low) and gradually increase your payments as your income (hopefully) increases.

Once you get that squared away, you should now tackle your other expenses. You may have bought into a life-style that you are not ready for. Check your rent and see of you could move into a smaller place for the next year or two. Are you trying to buy your lunch everyday, or a $4 coffee? For now, while starting out, you have to live like you are starting out. Once you start eliminating any other debts, such as credit card debt, etc. you will free up additional money every month.

Remember, you cannot expect to start out your spending where your parents left off when you moved out. They have 20+ years on you in terms of career growth, financial wisdom, and debt elimination.

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Bill Pratt is the author of "Extra Credit: The 7 Things Every College Student Needs to Know About Credit, Debt & Ca$h" and "Money Made Simple". You can find tons of useful articles and calculators and have your questions about money answered at www.ExtraCreditBook.com