“Debt” is a scary word, especially to young adults. The idea of owning a faceless credit card company or bank money doesn’t sit well with many people. And that fear shouldn’t have you scouring Google for more info about payments, debt collectors, bail bondsmen, and more.
As a young adult, right now is when you’re supposed to be learning all about financial responsibility. Below are 4 tips to get you started down that road.
Understand debt. As a young adult who is just getting started in the world of debt, credit, and payments, it can be hard, and intimidating, to try and understand everything, especially if you’re trying to untangle this knot of information alone. Debt is borrowed money that needs to be paid back.
There are two main ways to pay off debt. The first is in installment payments. This means every month you make a payment to the bank for the same amount of money until your debt is cleared. The other debt payment involves what is called a revolving account. This also requires you to make monthly payments, but payments aren’t fixed, so your payment amount changes with your balance.
Pass on credit cards. As a young adult, you will have credit card offers thrown at you left and right. Every credit card company from here to the moon is going to try to get you to open a card with them. Don’t even open the envelopes when they come in the mail. Just rip them up.
Credit card companies specifically target young adults because young adults haven’t yet had the opportunities to learn all there is to know about financial responsibility. Don’t allow yourself to be taken advantage of by companies offering you something you don’t completely understand.
Be smart about car debt. One of the biggest debt traps young people face is one they throw themselves into when they buy cars. As a society, we tend to be materialistic, so we are rarely content with what we possess. When we buy new cars, they have to be the biggest, fastest, and prettiest.
Even worse is the fact that young adults, especially here in America, will trade in their two or three-year-old car and take a loan on another new car before the first is paid off. This is what is known as a rolling debt. To avoid rolling car debt, buy a car, pay it off, and hang onto it for at least a few years after finishing with payments. That way, you’re debt-free with regard to cars for a few years and you get your money’s worth out of your car purchase.
Don’t be afraid to ask for help. This is the mistake most young adults make when it comes to money. Perhaps they don’t ask for help because they are afraid or because they are too proud. Whatever the cause may be, many young adults make the financial mistakes they do because they do not seek guidance before making a decision.
This could be as easy as asking a parent for their opinion. Many universities also offer financial planning options to students and alumni. You could even pop into the accounting department at work and ask a few questions. Asking a trained professional or someone who’s probably been in your shoes before for an opinion can make all the difference in your financial future. Just remember—it never hurts to ask.
Debt is not a bad thing, though—unnecessary debt is. The above tips will help you avoid some of the common and unnecessary debt that many young adults face. There’s just no need to fall behind financially, especially not during the part of your life when you’re just starting to get ahead.
These are all great tips. Definitely don’t take on a credit card if you don’t understand them.
Right on Michelle, taking on a credit card for all the wrong reasons is a bad idea.
Free Money Minute says
Be smart about car debt by not getting any car debt. You can always ride a beater until you can save up enough to buy a little bit better car and then drive that until you get an even better car. Your car payments add up quickly and can be turned into a debt free car!
I agree FMM. I’m not a big fan of car loans either. I’d rather do as you say and save up for it.
One thing I’ve learned over the years is that if I don’t know the answer, then ask. Sometimes people are so afraid to look stupid they would rather not ask a question. There are so many ways to learn about money, budgets and debt especially with the internet at our finger tips. Young adults have everything going for them today… all they need to do is get educated on their finances and apply that knowledge.
Totally agree Mr. CBB. I think this is why I’ve been able to do half way decent with my finances because I had friends and family who were able to teach me a think or too.
Laurie @thefrugalfarmer says
Great stuff here, Chris. The other tip we learned about car debt is that when you’re done paying off your car, keep making those payments, into a savings account, so that when the time comes to buy another vehicle, you’ve got the CASH. Also, take good care of your vehicle so that when you trade up you can sell it for top dollar.
KC @ genxfinance says
Young adults most not get too excited with getting a credit card. Sometimes, they get too overwhelmed with the idea that they are making bad financial decisions.
I agree Laurie, saving the extra cash aside after your car is paid off is a great idea. I prefer to buy cars in cash as well, car loans seem to just eat up cash flow pretty quick especially when you have a hefty mortgage on top of that.
I agree KC I don’t think I got my first credit card till I was 22, and that was only because I was getting married and going to Aruba for my honeymoon.