How to Use Your Graduation Gifts to Pay Student Loan Debt

If you’re graduating from university or college, you may get a few cash graduation gifts. These tips for using your graduation gifts to pay down your student loan may seem boring, but I can almost guarantee that you’ll never regret being debt free…

“Putting graduation gifts to good use helps start your independent financial life on the right foot,” says Ethan Ewing, president of “Making that investment is the perfect way to honor yourself and your achievement.”

The average graduation gift costs about $50, and cash or gift cards are the most commonly given gifts. A graduate who receives 10 gifts will start the summer $500 wealthier! That $500 can go a long way to reducing financial debt and creating prosperity. If you feel weird about life after graduation, read How to Survive the Real World: Life After College Graduation: Advice from 774 Graduates Who Did. And, here are seven great ways to use your graduation gifts from Ethan Ewing…

How to Use Your Graduation Gifts – 7 Tips for Reducing Student Loan Debt

1. Save your cash gifts. Don’t spend gift money on a night out or a new outfit. “If the gift is burning a hole in your pocket, allow yourself to spend about 10 percent frivolously,” Ewing says. “Put the rest in the bank or allow a trusted adult to hold it for you until the urge to spend fades.”

2. Barter your gift cards or gift certificates. For most new college graduates, cash is more helpful than stuff from a store. If you’ve received gift cards or gift certificates, try to barter them for cash. “If your parents are about to refurnish their bedroom, for instance, they might be willing to buy a home store card from you,” says Ewing.

3. Pay down your student loans and other financial debts. The average college student has credit card debt of more than $3,000. Paying $500 toward that debt would eliminate one-sixth of the balance. More importantly, a lump payment would turn the $500 gift into savings of more than $2,000 over the next few years. And if you continued paying $90 per month — the same payment you would have made originally — the debt would be repaid in 60 months (five years), saving more than $2,000.

4. Start an emergency financial fund. Deposit cash into an interest-earning account where you cannot instantly withdraw it, but it’s accessible in case of emergency. Most new college graduates will find that $500 will go a long way toward covering a medical issue, a sudden car repair, a job-interview suit or even a plane ticket in case of a family emergency. Ewing says, “When you start working, aim to save 10 percent of your income to build the emergency fund to cover at least six months of living expenses.” To learn more, read 9 Tips for Building an Emergency Fund.

5. Open an Individual Retirement Account (IRA). An 18-year-old who deposits $500 into an IRA that grows at a 6.5 percent annual rate until he or she is 67 years old will have almost $12,000. “If and when you are able, also participate in your employer’s 401(k) fund to be on the road to healthy retirement savings,” Ewing advises. Your graduation gift can reduce financial debt by becoming the base of a retirement fund.

6. Invest in good clothes. College graduates who will be going on job interviews or need to look professional at internships might find that a quality business suit can be a great investment. Go with classic styles and subdued, dark colors so that a suit purchase will endure for several years. “Seek advice from someone you respect, and do not be ashamed to bargain-hunt — you can invest money that is left over,” Ewing says.

7. Invest in travel costs. For graduates who will travel post-graduation, a passport is a good and often-necessary investment. Those driving cross-country might get value from a membership in an auto/trip service such as AAA. Graduates who will be renting a first apartment can apply financial gifts to a security deposit. Around town, gifts could help pay for annual car insurance, a commuting bike or an annual transit pass.

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If you have any questions or thoughts on graduation gifts or paying down your student loan debt, please comment below…

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