smart spending

A grad's guide to fiscal fitness

Prioritize your payments

Tamara Draut, author of "Strapped: Why America's 20- and 30-Somethings Can't Get Ahead" and vice president of policy and programs at Demos, a public policy research and advocacy group, 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 says. "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.

"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," says Staci Schiller, 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."

Schiller 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."

Graduates should think carefully about consolidating. One can consolidate only once unless a new loan for more education is initiated or a loan was left out of the original consolidation. Thanks to a new law enacted in 2006, however, borrowers can now choose to consolidate their loans with any lender. Previously, the "single-holder" rule meant that borrowers had to consolidate their federal student loans with the same lender that originated the loan.

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Graduates with private loans have to be careful. While consolidating private loans can lower monthly payments, consolidation also resets the terms of the loan, and borrowers could miss out on some, or all, of the benefits they originally banked on.

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