Is money stressing you out? Don’t worry, you are not alone. In fact millennials, those born between the early 1980s and the early 1990s, face a very different financial landscape than previous generations. Expensive college degrees are now easier to finance than ever with the availability of student loans. However, the high-paying jobs promised upon graduation don’t always happen. Spending, though, continues and the bills start to pile up. It’s enough to stress anyone out. But it doesn’t have to be that way.
If you are part of the $12.73 trillion of collective debt owed by Americans, as reported in Nerdwallet’s 2016 American Household Credit Card Debt Study, it may feel that only huge changes will make a difference in your debt. But small, everyday changes can make a difference over time. Get ready to pay off that debt!
Track your spending habits
Before you can begin to make a plan to tackle your debt, you need to know exactly what you are facing. That means recording how much you owe on student loans, auto loans, credit cards, and other consumer debt. How much are you spending on living expenses and discretionary spending? This is the least fun part of the debt pay off process but it is the foundation upon which all other strategies rest. Consider making it more fun by streaming your favorite music and rewarding yourself with a relaxing evening after you are done. You’ve taken the first step to becoming debt free!
Create a budget and stick to it!
The next important step is to create a budget. Most people hear the “b word” and think it means that they won’t be able to spend money ever again. But having a solid budget in place will give you permission to spend money in ways that make sense for your needs and priorities. This is where it is helpful to know how you spend money. A budget is all about priorities and choices.
Pay down the lowest debt first
Commonly referred to as the “snowball method,” popularized by saving-guru Dave Ramsey, paying down the lowest debt first is a great way to build momentum as you pay off debt. Just as a snowball accumulates more snow as it rolls down a hill, paying down your lowest debt first allows you to then put the money you were using to pay that debt towards your next. As you pay off debt, you accumulate more in your payment fund that can be used to the next and the next and so on. Go on and grow that snowball!
Make more money
The simple fact remains that debt accumulates when more money is going out than coming in. Addressing the money that goes out is an important part of getting to a debt-free life but don’t discount the benefit of bringing in more money. Is there a promotion you would be perfect for at work? Is it time to talk to your boss about a raise? Is a side hustle a good idea for you? Making more money can be helpful but beware of taking on more than you can handle. If you’re not ready, it can actually do more harm than good for your professional reputation. But if you feel ready for another professional challenge, go for it!
Many workplaces offer free financial counseling services to employees. They realize that money-related stress can impact an employee’s productivity and wisely invest in services that improve their employees’ quality of life. Check with your employer to see if they provide these services or have partnerships with other organizations. Credit unions and professional organizations are another great place to check. They can be a huge asset when looking at your spending and making a budget.
Stop using credit cards
This can be a difficult step to take, especially if you are feeling significant pressure to provide for your basic needs on your paycheck. But it can be a great way to keep your spending in check. Do some real soul searching and decide if having that convenient piece of plastic in your pocket is making it too easy to spend beyond your means. If it is, start carrying cash to pay for day to day expenses. When cash runs out, you can’t just swipe for some more at the register.
Consider a balance transfer card
The basic idea of a balance transfer credit card is simple: transfer the balance of your existing credit card to one with a lower interest rate. Many offer a 0% rate for a specified period of time. Sounds great, right? It can be, but only as a short-term solution. It requires opening a new line of credit and if credit cards got you in debt in the first place, having another card available can just make a bad situation worse. This option also requires some self-awareness about your ability to curb credit card spending to decide if it is a good strategy for your spending habits.
Pay less for existing bills
You would be surprised what a simple phone call can do for your budget. Many companies, such as cell phone providers or utilities, will lower rates for customers with a long history of paying on time. With one phone call to customer service, you can find out what they may be able to do for you and your budget. Never hurts to ask, right?
Paying off debt is a big project. You should not expect it to be easy or particularly fast, but it will be rewarding and set you up for a lifetime of financial freedom and options. Small steps today can mean significant financial reward in the future. For millennials, now is the best time to create that future.