The younger generation today faces more debt issues than ever before, owing to education loans, attractive credit card deals and rising housing costs. Since it is difficult for young graduates to buy property or automobile right out of college, they usually end up taking car loans and applying for a mortgage. It adds to their debt burden which already includes their student loan. Young people in their late 20s and early 30s can implement some useful tips to avoid getting trapped in high debt issues. Managing their expenses and planning their financial resources can relieve them of accumulating debt at an early stage of their lives and secure their adulthood.
Useful tips to manage your debt at a young age
Face your debt up front
When fresh graduates or young professionals have too much debt, they do not want to list it down and face the reality that they might be in deep waters with education loan, car loan, and mortgage. Listing down your loan amounts or monthly installments helps you make a strong an effective monthly payment plan. In turn, it will help you manage your extra expenses and allocate more towards your repayment amount.
Allocate a debt resolution budget
To resolve your debt issues quickly, you need to set aside a certain amount of your income solely to make loan repayments. Based on your debt level, you can start by allocating 10-15% of your monthly income to your monthly repayments. Controlling your expenses can help you raise the debt allocation percentage to 20-25%. The higher the percentage of income allocated to debt, the lesser will be the time required to pay-off the debt.
Avoid Credit Card Debt
A credit card acts as a highly unsecured loan offered by the banks. If possible, young people should only use it when necessary. Banks and financial institutions attract you by offering minimum payment options (paying a minimum of 2% of the principal balance). However, the price you pay for this facility is the high-interest rate that they add to your overall balance. Eventually, you end up paying much more than you originally used. Because they are an unsecured credit facility, credit card companies charge higher interest than other loan facilities such as Personal Loans and Car Loans.
Avoid Car revolving debt
As young people make their way into the corporate world, they want to get the latest car model every year. It keeps them revolving around car loan which keeps on increasing every year. On the other hand, you can buy one car and keep it until the end of your loan term. After your term is over, you will not have to pay installments every month and keep the car for as long as you want.
Debt Consolidation / Refinancing
An average American in the 30s usually accumulates a debt amount of 60-65k. If your total debt is exceeding this amount, then you should seriously consider the option of consolidating or refinancing your debt. Many financing companies help debtors with their loan consolidation by offering lower interest rates or settle the full amount at a lower price, provided you are willing to pay-off your debt with a lump sum amount. However, there are risks involved in debt consolidation, and one should read through the terms and conditions very carefully to avoid any hidden charges or fees.
Create Emergency Budgets
Financial advisors recommend that you save up to six months of salary for any unexpected event or for paying off house rents, car loans or credit card payments. Saving certain amount every month can prove beneficial when you want to make a lump sum payment to pay off the remaining loan amount in full.
Millennials today are burdened with heavy debt amounts, and it sometimes takes them many years to consolidate or pay off their debt. During this period, they are so busy making monthly payments that they lose out on enjoying their young professional life. Making yourself debt free at a young age can help you secure your adult life by investing in properties, saving for your future generations and covering for your emergency needs such as health issues. It is vital to address your debt issues as they start arising when you are young. Keep a tab on your loan amounts and make regular and high payments. Having a goal to remove yourself from any debt by a certain age helps you financially secure yourself when you get old.