How To Pay Off Debt
Important Tips on How to Pay Off Debt for Young Adults
Debt has become so commonplace it almost seems like the American pastime. Many people buy what they want and worry about how to pay for it later. Not surprisingly, young adults are accumulating debt rather quickly and feeling the effects of the extra burden.
Debt caused by student loans is on the rise. Between 2007 and 2012, individual debt increased by nearly $5,000.00. This is a significant amount considering how little the average college student makes in wages.
Feeling the pressure of stress, young adults are realizing the importance of gaining control and learning how to pay off debt. They are taking active steps to resolve outstanding balances on their credit cards, paying off their mortgages and car loans earlier, and reducing or eliminating other forms of debt.
One way to avoid extra debt for young adults is to not own credit cards. An impressive 16% of young adults ages 18-29 have avoided owning a credit card. Young adults are becoming savvy at living as debt free as possible because they are beginning to understand the impact of debt on their future. There are some steps you can do to effectively learn how to pay off debt.[bctt tweet=”Here’s some ways to reduce and eliminate debt quickly…” username=”HBSMoneyTips”]
- Understand what you owe. It is important to know how much you owe and to whom. You can check your credit report for free at http://www.annualcreditreport.com Your credit report will show all loans, credit cards and other debt.
- Now that you are aware of your debt, find out the terms of any loans that you have. It is important to know if there are any penalties for paying off your loan early. In Excel, make lists of all amounts that are due, monthly payments, and interest rates. This will tell you what debts should be paid off early.
- The higher the interest rate, the quicker the debt should be paid off. Credit card balances are important to bring to zero as are high rate private school loans. Pay your lower interest rates off last. Lower interest rate loans are generally student loans and mortgages. Any cash that you have left over, should go towards paying off your debt.
- Building strong credit. You need a small amount of debt to establish good credit. In some cases, not having credit and having bad credit are treated similarly. You may be turned down for financing or get a higher percentage rate by not having credit. Apply for a low interest or secured credit card and only use it for small purchases that you are sure will not put you in debtors stress.
- Emergency savings. If you find that your debt is non-critical and you do not have high interest loans to pay off, channel some of that extra cash into an emergency savings account. Take half the extra money that you are using to pay off low interest debt and put that into your emergency savings.An emergency savings will prevent you from going further into debt should an emergency strike. Having the cash to pay for an emergency prevents you from ever having to put that bill on a higher interest rate credit card.
- Staying on budget. Establishing a budget, whether your debt is large or small, is the preferred way to maintain control of your finances. Knowing your debt to income allows you to know how much money you can channel into paying down your debt and increasing your emergency savings.Having a budget in black and white shows where needless spending occurs and shows you where you can cut back on the items that you really do not need.
Learning how to pay off debt is easier when you have more money to work with.It is important to revisit your budget often and change it to fit with your lifestyle. Remaining flexible while focused on your goal is the key to being able to enjoy your life while becoming financially free. Being debt free will give you a definite confidence boost.