Your debt-to-income ratio: The number-one concern



One of your biggest worries, post-college, will probably be making enough money to live on. A few graduates each year make it big on Wall Street or land a job with a top law firm. However, if you're like many graduates, and you can't find a job in your field right away, consider taking on a gig or two that is pleasant enough to work at, and can help you pay the bills. There's no shame in working at a daycare or a sandwich shop for a bit until you land your dream job. Or, you might take a part-time job in your field and supplement it with an unrelated but decent-paying retail or restaurant job.

Continue to spend the least amount of money possible. Living expenses, post-college, can eat up a significant portion of a meager entry-level income. Cut back on living expenditures as much as you can. If you live in Brooklyn, NY, that might mean selling your car and relying on the New York subway to get around. If you live in Midwestern Illinois, that might mean eschewing manicures and hair salon visits, or giving up take-out food for lunch each day, until you begin to make a higher income. Examine your income against your expenses. This task really helps you to see where your money is going. Formulate a monthly budget, and stick to it.

You might need to make some drastic, post-college lifestyle changes to get ahead financially. For some students, that will mean temporarily moving back home with parents or relatives. For others, it will mean leaving the glitz and glamour of New York City, Los Angeles, Chicago -- or any other large, expensive city in which they might have gone to college ? for a smaller, more affordable city or town. For still others, it might mean splitting a house with three or four roommates. There is no one right way to cut back on living expenses ? it's all dependent on how much debt you will owe, and what suits your lifestyle and professional needs.

Your monthly debt-to-income ratio is determined solely by how much money you spend versus how much money you bring in. You will want to minimize expenditures while maximizing income. That's it ? it's that simple (but, it can be so complicated). Look for ways you can save or cut back, beyond the obvious. Turn your thermostat down in the winter, and shut your air conditioner off when you're not home in the summer. Replace your energy-sucking regular light bulbs with fluorescent bulbs. Bike or walk instead of driving whenever possible, to save on gas. And, if you need the money, and your schedule has room, bring in a bit of extra cash each month with babysitting, yard work, or freelance gigs.

Manage your debt, and plan for the future

Handle your loans well. For some, this means consolidating all loan packages upon graduation to get the best fixed interest rates. For others, it might mean placing loans in forbearance, as a result of a temporary inability to make full monthly payments. Still other students choose loan deferment, through civic engagement programs such as AmeriCorps, or by completing additional schooling. Caveat: Additional education can saddle you with more debt ? and you face the risk of re-entering the job market with unmanageable loan payments and no work experience, an especially cruel fate if you weren't especially passionate about post-grad studies in the first place. Think long and hard about what the best loan plan-of-action will be for you.

Continue to avoid racking up additional debt. Some financial advisors believe that low-income college grads should make purchases on credit cards if they cannot afford to make cash purchases. However, many new grads fall prey to major debt traps. They begin paying their utility bills on credit cards, then think, ?Oh, well, maybe I'll pay this bar tab on credit. And buy some new clothes. After all, I deserve a little fun.? And, that's the problem. It's so very easy to let credit card spending get out of control ? and the consequences come later, when you can't make timely payments, and your credit score is sinking.

There is one positive side to using credit cards for moderate, necessary purchases, however: The card can help you build up a strong credit history, which is essential for long-term loans, such as car and mortgage payments. If your willpower is strong, and your non-essential spending urges are non-existent, you might consider getting a credit card with the lowest interest rate you're eligible for. Put your groceries or your electric bill ? but not both ? on the card each month, and then pay the balance off in full. You'll avoid racking up high-interest payments, and by the time you're looking to buy a house, your credit score will be excellent.

Finally, consider consulting a credit counselor. Many professional credit counseling companies offer free or reduced-rate debt education and credit counseling to students and low-income professionals. These money gurus can help you evaluate your budget objectively, cut unnecessary expenses, and pay down debts. They can also help you formulate a plan for managing your money, long term.

Good luck!