When you graduate from college, you may be feeling a great sense of accomplishment and looking forward to what the future brings. As a nice bonus, friends and family members often like to help new graduates celebrate their achievements through gifts of cash; and, if this has happened to you, it also raises an important question: what to do with graduation money?
The right answer depends upon your own unique circumstances, including your goals, income, liquidity, debts and more. To help you navigate your options, this post will share four smart strategies for graduation money.
• choosing interview clothes for your dream job
• paying off high interest credit card debt
• creating an emergency savings fund
• paying down student loans
In this blog post, we’ll offer guidance for each of these four strategies, along with tips on how to create a budget you can stick to, including an easy-to-use downloadable worksheet. We’ll also provide an overview of student loan refinancing options, a financial strategy that can help free up cash flow and/or help you to reduce the amount of interest you’ll pay, overall.
Choosing Interview Clothes for Your Dream Job
If you’ve just graduated, you may be job hunting, so it makes sense to examine clothing in your closet with a new eye. Yes, what you can bring to a company in knowledge, skills and attitude is what’s most important, but the reality is that for many jobs, how you dress for the interview forms a lasting impression that’s hard for employers to shake.
So if your closet doesn’t contain what might dazzle potential employers, it may make sense to use some of your graduation money to invest in classic interview clothing.
For men, that typically means a suit (navy blue is standard), with a long-sleeved, button down shirt, a classy tie, and black or brown dress shoes. Even if employees dress more casually, you want to make a great first impression. For women, either a skirt suit or a pantsuit can work, perhaps in navy or black, with a dress blouse that’s professional looking and subtle.
Depending upon how much money you received for graduation, you may or may not use up all of the cash on strategy #1. If so, know you’re much better positioned to get the right job to help you to benefit from strategies two through four. If you still have graduation money left over, then also consider the next three strategies.
Paying Off High Interest Credit Card Debt
It’s possible you’ve accumulated credit card debt while in college. If so, that isn’t unusual. After all, you may not have been working significant numbers of hours while attending college, focusing instead on schoolwork—and, let’s face it, unexpected expenses probably cropped up.
Having said that, one of the best gifts you can give yourself is ending the cycle of credit card debt. While in school, perhaps you could only make minimum payments; and, while again, that’s perfectly understandable, that may have felt like emptying the ocean using a paper cup.
Here’s why paying off credit card debt can be so problematic. Most credit card companies charge interest that compounds over time. This means you’re also paying interest on the accrued interest.
Interest is calculated on the outstanding balance—continually calculated and likely compounded daily—and, even when you make minimum payments, the interest just keeps on compounding.
Because interest compounding doesn’t stop until the balance is paid in full, using graduation money to pay off this insidious kind of debt is a smart strategy. If you’d like to get a sense of how compounding interest is working on your outstanding balances, you can use our credit card interest calculator.
Creating an Emergency Savings Fund
Having an emergency savings fund can provide you with a greater sense of security and peace of mind. And, one of the hardest parts of having one is getting it started in the first place.
It’s typically recommended you have three to six months’ of living expenses put away in an emergency fund. And, depending upon how much money friends and family members gifted you upon graduation, you may be able to get a good start on creating this fund. If you’ve already started one, this can be a great way to supplement the balance.
And, once you have momentum going with building up this fund, it can be much easier to keep it going, perhaps adding $25 per week in the checking account or savings account you’ve established for that purpose.
As you watch the balance grow, your peace of mind may increase, as well. If you’re still deciding what savings vehicle to use, we encourage you to explore SoFi MoneyTM, a hybrid account that combines the best of savings and checking, with a higher interest rate and no account fees. SoFi Money is smart money.
Paying Down Student Loans
While you were in college, you may have needed to piece together funding from multiple sources to pay for tuition and housing, perhaps including federal and private student loans. If so, again, that isn’t unusual.
Unless you have a Direct Subsidized Federal Loan , your student loans have been accruing interest while while you’ve been in college and also during any grace periods provided. If you have PLUS loans, you’ve been required to start making payments as soon as funds were fully paid out.
The bottom line, though, is that, if you have student loans, it can be a very smart strategy
to use your gift money after graduation to pay down balances on these loans. It may also make sense to explore refinancing them into one low interest loan (keeping in mind that you can lose some federal benefits if you do), but we’ll get to that later in this post.
Choosing What to Do With Graduation Money
Deciding which combination of these strategies is most logical and practical for you depends upon your unique financial situation, including your income, how much money you have in savings and investments, the amount of debt you have, your monthly payments, and your cash flow.
So, to make the right decision, first create a budget you can stick to. Steps to create this budget include:
• gathering all your financial documents together
• creating a list of monthly expenses, both fixed and flexible
• totaling your monthly income
• listing how much money you have in savings accounts (including emergency funds) and any investments
• creating a chart of what’s going in and out monthly;
Student Loan Refinancing
As you’re making financial decisions and creating a plan for stability and growth, also take a look at consolidating and refinancing your student loans into one loan and payment. If you can refinance them into a low interest loan, not only will your budgeting become much more convenient with just one monthly payment, but you could also save money on interest.
We’ve created a guide to help you take a fresh look at your student loans and the role that refinancing them can play. In fact, refinancing them can be a financial game changer.
So first, know your loans. Are they all federal or a mix of federal and private? If private, what companies are the lenders? What is the balance on each of these loans? The interest rates? Do deferment and forgiveness benefits apply to some of your loans? If so, which ones?
Note that the Federal Direct Loan won’t allow you to combine your federal and private student loans into one, but there are a few private lenders, like SoFi, that do.
Now it’s time to do the math to determine how much student loan refinancing could affect your situation now, as well as during the life of your loans. Using a student loan calculator can make this step much easier.
You’ll need to decide whether a fixed rate or a variable one makes the most sense for you, and then choose a lender that provides what you need. If you need to consolidate both private and federal student loans, and then refinance them into one loan, then this can shorten your list of lenders to consider. A competitive interest rate is important, and also check to see if the lender offers payment deferral in case of job loss.
Choosing SoFi for Your Student Loan Refinancing
At SoFi, you could benefit from a lower interest rate and may be able to combine federal and private student loans. Here’s more about refinancing student loans with us.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation
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