Advice from a fellow college graduateThis guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates and on Facebook at /GoBRates
Did you know that the average college graduate is about $20,000 in debt at graduation while the average salary for a new grad is only $30,000? Unless you plan to somehow live off of ten grand for a year, you're going to need a solid debt-repayment plan.
It's not just the student loans that rack up debt either. According to StateUniversity.com, college students spend $11 billion a year on snacks and beverages, $474 million on music sales, $658 million on theater tickets, $341 million on games and $50 per month on beer every year. If you can relate, you are likely graduating with substantial credit card debt in addition to bills that are specifically school-related.
Which Debts to Pay FirstAfter graduation, you are in a very fortunate financial situation compared with the older population. First, you may have bills to pay, but they certainly aren't going toward a mortgage or braces for your kids. Your life comes with few strings attached, which gives you the opportunity to pay off your debts fairly quickly and start the next phase of your life with a clean slate.
That said, there is a right way and a wrong way to pay off post-college debt. Most importantly, DO NOT pay only the minimum required on your credit card.
Here's why: Your total debt probably includes student loans, which usually have the lowest interest rates. They also tend to allow you a grace period after graduation during which you don't have to start making payments yet. Plus, student loan interest can be written off for up to $2,500 per year.
Other debts, like car payments, financed furniture, etc. will be more expensive when you carry a balance or miss payments, and credit card interest rates are the highest of all (U.S. average of 16.85% APR). If you make minimum payments on your credit card(s) while trying to tackle several other debts at once, you will end up paying thousands more in interest payments.
So what's the right way? It's best if you can tackle those expensive credit card bills first and get them out of the way. Then, move on to smaller amounts you owe.
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