According to Northwestern Mutual, $32,000 is the average personal debt of a millennial. This includes student loans and credit card debt and does not include home mortgages. Starting off so early in life with so much debt, before the costly life events like getting married, purchasing a house, having kids, can be debilitating. Many millennials aren’t confident when or how they will ever be debt free. Debt might feel like an endless cycle impossible to escape. It might seem that your ideal lifestyle can only be attained when you utilize credit and borrow money. But it is possible to be debt free and have an enjoyable life. Understanding that will influence how you view spending and help get you out of debt.
Live Within Your Means
A key aspect of getting out and staying out of debt is to live within your means. You might presently take advantage of the buy now, pay later option afforded to you by credit cards. But do you realize, or downplay, the consequences? Credit cards aren’t evil, read my post about their benefits. But credit cards are only beneficial if you live within your means and pay off the card in full every month. That takes attention and self control over your spending. If you don’t already have one, set up a budget. List your income and your monthly expenses. If your monthly expenses are higher than your income, you need to make a change. It will be challenging when the paycheck doesn’t stretch as far as you’d like, but necessary to ditch debt.
Make it a priority to stop accumulating more debt and reduce spending to pay down debt. Cut back on eating out, clothing purchases, vacations, etc. Consider downsizing your housing situation or getting a roommate. Do some research on your utilities and insurance to see if you can find a better deal. In some cases, in order to keep your business, companies will offer you a lower rate or discount.
These days it is often referred to as a side hustle to sound less unnerving than to simply say, “make more money,” or “get a second job.” But if you are drowning in debt and need to take a big step to get out of it, this can make a significant impact.
Maybe it is time to talk to your employer about a raise or look for a higher paying job. This is not to imply this is easy, but it is definitely worth your consideration. Otherwise, walk dogs, run errands, sell clothes you no longer wear at a consignment shop- find ways to earn more dough.
Pay Off Highest Interest First
There are many theories of the best way to pay off your debt. You can pay off the smallest loan first. It might be encouraging to see the number of loans you have shrink. However, I would suggest paying off the highest interest loan first. The longer you hold high interest loans the more you’ll owe as interest accumulates. So work to pay those off first.
Save for the Future
While you are paying off your debt, it is also important to have emergency savings on hand. Read my post about why you need an emergency savings fund right away. It will help prevent you from accumulating more debt in the future.
Remember why you’re doing this. Living on a budget, cutting back spending, denying yourself, or delaying purchases can be challenging. It may feel like you are not making progress or that you’ll never reach your goal. There will be times when you want to give up and accept a life in debt. Don’t settle for that life. You can free yourself from debt. You don’t always have to deny yourself. Just practice moderation and patience. The day will come when you can say goodbye to debt and move on toward new financial goals like owning your own home, retiring, traveling, and feeling financially secure.
While it might seem overwhelming, becoming debt free is possible. Debt can be stressful and can stand in the way of your dreams. Cut back to live within your means. Find a way to earn more through a raise, a new higher paying job, or a side hustle. Pay off highest interest loans first. Create an emergency fund to avoid more debt. But most of all, don’t let the feeling that you will always be in debt become an excuse to spend more. Sacrifice and self control now will lead to progress over time. It is worth it to your mental health and financial health to work towards being debt free.