How to spend your college graduation checks

Stack of bills wrapped with red bow

Congratulations! You've made it through four (or maybe five) long years of all-nighters cramming for exams, writing term papers and, of course, partying.

Now the graduation presents -- mostly checks from generous family members and friends -- are flooding in.

But with the economy suffering through the worst recession in 50 years, you'll need to spend that money far more wisely than previous grads.

Here are 7 smart ideas on how to make the most of your gifts:

Smart move 1. Treat yourself -- a little.

Take 10% of the cash you received and spend it on whatever you like, whether it's splurging on music, buying a new gadget or taking a cheap road trip.

Being too frugal is a lot like crash dieting. It makes you susceptible to binge eating -- or spending -- that sabotages all of your good intentions.

Smart move 2. Pay off credit card debt.

College seniors with a credit card owe an average of $4,138, according to the latest survey by Sallie Mae, a provider of college loans.

Credit card debt is the most expensive kind of debt you can have, and it's getting even more expensive as banks raise rates and reduce credit limits on millions of accounts -- especially those with big balances.

Smart move 3. Start an emergency savings account.

Carve out $500 for a starter emergency fund, and keep it in a savings account that's linked to your checking account. It will save you money --and stress -- over time.

As you enter today's tight job market, the extra cash can help tide you over during your job search. It can also help supplement a part-time paycheck.

Even if you've landed a well-paying job, the rainy-day fund can cover the unexpected expenses that inevitably crop up.

"Having a little money in the bank can keep you from bouncing checks or help you pay for minor car repairs," says personal finance expert Liz Weston, author of Your Credit Score and Easy Money.

Smart move 4. Get basic health insurance.

In years past, most students moved smoothly from the health insurance provided by their parents to health insurance provided by their employer.

But because job searches are taking longer and fewer employers are offering health insurance as a benefit, you may be left in health care limbo.

According to the Census Bureau, about a quarter of all people between the ages of 20 and 29 don't have health insurance. Even for the young and healthy, a single major medical malady -- such as a burst appendix -- can mean financial catastrophe.

You can sort through policies and prices on Web sites such as insurme.com and ehealthinsurance.com.

Smart move 5. Spend it on your first grown-up apartment.

Creating a home isn't cheap.

Most landlords will demand a security deposit and the first (and maybe last) month's rent before you can move in.

You may also need to purchase a bed and other furniture. "It's mind-boggling to realize how much it costs to furnish an apartment," says Peter Bielagus, a personal finance expert and author of Getting Loaded.

You don't want to put these purchases on a credit card. "That's where some of that graduation reserve can really come in handy," Bielagus says.

Smart move 6. Make a down payment on a good used car.

If you're going to live in a big city, you may be able to get by on public transportation. But if you need wheels to get to your job, a great used car is your best bet.

Most three- or four-year-old cars and trucks are surprisingly reliable, because automakers have done so much to improve the durability of every model.

They cost a lot less, too -- an average of $15,175, or just a little more than half as much as the typical new vehicle.

"Don't overextend yourself," says Carmen Wong Ulrich, host of CNBC's On the Money. "You don't want monthly payments, including gas and insurance, adding up to more than 20% of your monthly budget."

Smart move 7. Invest in professional clothes.

If you haven't landed a job, a sleek, dark-colored suit is a must for every job interview.

It's critical to look professional in a tough job market where you may be competing with older, more experienced candidates, even for entry-level jobs.

If you've already been hired, your appearance is the first thing any new employer will evaluate.

The difference between a college and a professional wardrobe is huge, and looking the part will go a long way toward getting your career off on the right foot.

Spending a few hundred dollars, or even as much as $500, on a suit you'll wear over and over again is not an extravagance.

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