Debt Payoff After College: A Graduate's First Steps

You finished college. Maybe you’re starting your first real job, maybe you’re still looking. Either way, you probably have student loans, possibly some credit card debt from the college years, and a vague sense that you should be “doing something” about all of it. You’re right. But the good news is that you’re catching this early, which is the single biggest advantage you have.

Here’s your roadmap for the first year after graduation — the decisions that matter most and the ones you can safely defer.

Know What You Owe

Before you can build a plan, you need the full picture. Most graduates have a rough idea of their debt but haven’t actually seen every account in one place.

For student loans:

• Log into studentaid.gov to see all your federal loans, including balances, interest rates, and servicer information.
• Check your email and loan documents for any private student loans. These won’t show up on the federal site.

For credit card debt:

• Log into each card account and note the balance, interest rate, and minimum payment.
• If you’ve lost track of accounts, pull your free credit report at annualcreditreport.com to see everything.

Write it all down. Here’s what you’re capturing for each debt:

Debt	Balance	Interest Rate	Minimum Payment	Type
Federal loan (Stafford)	$27,000	5.5%	TBD	Federal
Private loan (Sallie Mae)	$8,000	8.2%	$95	Private
Credit card (Visa)	$3,200	22%	$64	Credit card
Credit card (Store card)	$800	26%	$25	Credit card

The average Class of 2025 graduate carries about $30,000-35,000 in student loans. If you’re above that, don’t panic. If you’re below, you’re ahead of the curve. Either way, the approach is the same.

Understand Your Grace Period

Federal student loans typically come with a six-month grace period after graduation (or when you drop below half-time enrollment). During this window:

• No payments are required.
• Subsidized loans don’t accrue interest. Unsubsidized loans do.

This grace period isn’t a vacation from your debt — it’s a runway. Use it wisely:

1. Build your budget. If you’ve started working, use these six months to figure out your actual monthly expenses.
2. Build a starter emergency fund. Aim for $1,000 before your first student loan payment hits. See our emergency fund guide.
3. Pay interest on unsubsidized loans if possible. Even small payments during grace prevent interest from capitalizing (being added to your principal balance). On a $20,000 unsubsidized loan at 5.5%, six months of unpaid interest adds roughly $550 to your balance.

Private student loans may have different grace periods — check your loan terms.

For a full overview of federal loan options, read our student loan basics guide.

Choose Your Federal Loan Repayment Plan

When grace ends, you’ll need to select a repayment plan. The main options:

Standard Repayment (10 years)

Fixed monthly payments over 10 years. This is the default if you don’t choose anything else. It’s the fastest standard plan and costs the least in total interest. On $30,000 at 5.5%, your payment would be about $325/month.

Income-Driven Repayment (IDR)

Payments are capped at a percentage of your discretionary income (typically 10-20%). If your income is low, your payments could be as low as $0/month. After 20-25 years, any remaining balance is forgiven (though it may be taxable).

IDR makes sense if:

• Your monthly income can’t support standard payments
• You’re pursuing Public Service Loan Forgiveness (PSLF)
• You need breathing room while you stabilize your finances

The downside: you pay more interest over the life of the loan because the repayment period is longer.

See our income-based repayment guide for the detailed comparison.

The Smart Default for Most New Grads

If you can afford the standard payment, take it. It gets you out of debt in 10 years with the least interest. If you can’t afford it right now, start with IDR and switch to standard payments (or pay extra) once your income increases.

Don’t default to IDR just because the payment is lower. Lower payments feel good today but cost thousands more over time.

Tackle Credit Card Debt First

If you’re carrying both student loans and credit card debt, the credit cards should be your first target. Here’s why:

• Credit card rates are 3-5x higher than student loan rates. A 22% APR credit card is costing you dramatically more per dollar of debt than a 5.5% student loan.
• Credit card debt has no tax advantages. Student loan interest is partially tax-deductible (up to $2,500/year). Credit card interest isn’t deductible at all.
• Eliminating credit card debt frees up cash flow fast. Most credit card balances for new grads are small enough to pay off in 6-12 months with focused effort.

Use the debt avalanche method to attack the highest-rate card first, or the debt snowball method to knock out the smallest balance for a quick win. On typical post-college credit card debt ($1,000-5,000), the interest difference between the two methods is usually under $100. Pick whichever keeps you motivated.

Build a Budget From Scratch

You probably didn’t have a formal budget in college. Now you need one. It doesn’t have to be complicated.

The 50/30/20 Starter Framework

Take your monthly after-tax income and divide it:

• 50% for needs: Rent, utilities, groceries, transportation, insurance, minimum debt payments
• 30% for wants: Dining out, entertainment, shopping, subscriptions
• 20% for financial goals: Extra debt payments, emergency fund, retirement savings

On a $40,000 salary (roughly $2,800/month after tax), that looks like:

Category	Amount
Needs	$1,400
Wants	$840
Goals	$560

If needs eat up more than 50% (common in high-cost cities), the adjustment comes from wants, not goals. Protecting that 20% for financial goals is what gets you out of debt and builds long-term stability.

If you’re looking for more structure, our zero-based budgeting guide walks through assigning every dollar a purpose.

Avoid the Post-College Debt Traps

New grads fall into predictable patterns that pile on debt right when they should be paying it off:

The “I deserve it” spending spike. After years of being a broke student, the first real paycheck can trigger lifestyle inflation. A new car, apartment upgrades, eating out constantly. You earned it, sure — but financing your new lifestyle on credit while carrying student loans is how $30,000 in debt becomes $50,000.

The new car loan. If you need a car, buy the cheapest reliable one you can find. A $5,000 used Honda Civic gets you to work just as reliably as a $30,000 financed SUV. The average new car payment is over $700/month. That alone could pay off your student loans years ahead of schedule.

Keeping up with peers who have different financial situations. Your coworker who leases a BMW might have family money, higher income, or simply more debt than you. Comparing spending is a trap. Compare net worth instead.

Ignoring your loans during deferment or grace. It’s easy to pretend student loans don’t exist when payments haven’t started yet. But interest is often accumulating, and six months of denial turns into a bigger balance and a rougher payment shock when bills start.

Your First-Year Financial Priorities (In Order)

Here’s the recommended sequence for your first year out of college:

1. Make all minimum payments on time. Late payments damage your credit and add fees. Set up autopay for minimums on everything.
2. Build a $1,000 emergency fund. This takes priority over extra debt payments.
3. Get your employer’s 401(k) match. If your employer matches, contribute enough to get the full match. It’s free money.
4. Pay off credit card debt aggressively. Every extra dollar beyond minimums, emergency fund, and 401(k) match goes here.
5. Choose your student loan repayment plan. Standard if you can afford it, IDR if you need breathing room.
6. Start increasing student loan payments. Once credit cards are gone, redirect those payments to your highest-rate student loan.

Start Building Credit the Right Way

You need good credit for your future (renting apartments, insurance rates, eventually a mortgage), but you don’t need to carry debt to build it. Once your credit card debt is paid off:

• Keep one card open with a small recurring charge on autopay
• Never carry a balance month to month
• Keep utilization below 30% of your credit limit (below 10% is ideal)

For more on this, see our credit score and debt guide.

FAQ

Should I aggressively pay off student loans or invest?

At typical federal student loan rates (5-7%), this is genuinely debatable. If your employer offers a 401(k) match, always get the match first. Beyond that, eliminating student loans faster gives you guaranteed returns equal to the interest rate. For most new grads, a balanced approach works: contribute enough for the match, pay minimums on student loans, kill credit card debt, then split extra money between student loans and retirement savings.

My parents cosigned my loans. Does that affect anything?

Yes — significantly. If you miss payments, it damages both your credit and your parents’ credit. If you default, the lender can come after your parents for the full balance. This makes on-time payments especially critical. If refinancing is an option down the road, releasing your parents from the cosigner obligation should be a goal.

I’m making $30,000 a year. Is it even possible to pay off $35,000 in student loans?

Yes, but it will take time. On IDR, your payments will be very manageable (possibly $50-150/month). As your income grows, you’ll be able to put more toward loans. The key is to avoid adding more debt (especially credit card debt) and to increase payments every time your income increases. Even an extra $50/month reduces your total payoff time and interest significantly.

Should I consolidate or refinance my student loans?

Federal loan consolidation simplifies payments but doesn’t lower your rate. Refinancing through a private lender can lower your rate, but you lose federal protections like IDR, deferment, and potential forgiveness. Only refinance if you have stable income, no plans to pursue PSLF, and can lock in a meaningfully lower rate. Never refinance federal loans if there’s any chance you’ll need IDR or forgiveness.

I have a job offer but it’s not in my field. Should I wait for something better while deferring loans?

Take the job. Working in any capacity while you continue your search is better than accumulating interest with no income. You can always job-search while employed. The income helps you build your emergency fund, start payments, and establish a financial foundation — even if the job isn’t your dream role.