Associated Press
10 July 2004

NEW YORK -- Leaving college and entering the real world can be daunting.

New graduates often must juggle finding a place to rent, buying a car and investing in an office wardrobe. At the same time, accumulated credit card bills and college loans must be paid.

Barbara Steinmetz, a certified financial planner in Burlingame, Calif., said those first paychecks are often "more money than they've seen at any time in their life." But those dollars need to be managed carefully or the new graduates will soon find themselves even deeper in debt, she said.

"They need to take a look early at cash flow -- how much money they'll have after taxes and some estimate of what expenses will be," Steinmetz said. "If it looks like there's more month than paycheck, they can move right away to pare down spending."

That's especially important because many of today's graduates are coming out of college with huge debts.

According to studies by Nellie Mae, a college lender based in Braintree, Mass., the average student loan debt of those graduating from four-year institutions is nearly $19,000, and the average credit card debt is more than $3,200.

For new graduates, "it's not a bad strategy to get used to using a debit card or cash" until they get some experience with just how far each paycheck will go, Steinmetz said.

While she understands that some borrowing may be necessary -- to buy a new suit for job interviews, for example -- she believes new debt should be taken on judiciously.

"You don't want to accumulate more getting all those toys that suddenly seem affordable," Steinmetz said.

For Lorena Nava, 22, who graduated in May from San Diego State University, budgeting hasn't been a problem.

"I'm used to watching what's coming in and what's going out," she said. "I'll think, Can I afford to do XYZ or do I have to wait until next month? If I have to I'll wait. I'm definitely more of a frugal person."

But Nava, who has an internship at Allison & Partners, a public relations agency in San Diego, isn't sure yet how she's going to get health insurance coverage after her access to student medical services ends in the fall.

A bigger problem is the lack of a credit rating, she said. Although she has about $2,000 in credit card debt from her school years, she doesn't have the long credit history that merchants and bankers want to see.

"It means you have a hard time getting things done," Nava said. "They check it for a phone, when you apply for an apartment, when you want to buy a car."

After several banks turned her down for a car loan, she got financing from a credit union where she had had an account since childhood.

When she's more settled, she intends to start paying down her credit card balance -- perhaps with some help from her parents.

"That should have the added benefit of helping build my credit," she said.

Virginia B. Morris, author of "Welcome to Your Financial Life -- A Guide to Personal Finance in your 20s and 30s," believes parents who are able to should help their children financially in the year or two after they graduate.

"The transition can be difficult for some kids," she said. "Those who make out the best are those whose parents see the first couple years as an extension of school and help them out."

Morris recommends parents look for ways to subsidize their children without taking away their independence. This can include coming up with the deposit for an apartment or paying the car insurance or covering private health insurance.

Morris said some graduates feel they should try to pay their college loans down fast. She recommends against that.

"Those loans generally carry interest rates of about 3 percent, which is about the best rate you can get anywhere on borrowed money," she said.

Her advice is that graduates pay their loans on schedule and put any extra money toward building an emergency fund or starting a retirement savings account.

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