So You're Young and in Debt, Now What?
There comes a point in everyone’s life where whatever money we have is just not enough.
Particularly when we hit post-secondary education, marriage, home-ownership, parenthood, grandparenthood, and the list goes on and on and on.
But being young, we’re at an advantage. Except of course when it comes time to pay the exponentially growing cost of tuition. Believe me when I tell you that school debt is just the least of your worries.
In fact, school debit is considered “good debt”, according to money guru Gail Vaz-Oxlade. With such low annual interest, we’ve got other things to worry about. Like those evil credit cards that carried the cost of our textbooks, ridiculous hourly rates for parking, and maybe an outfit…or three.
Here’s a little anecdote. When I turned 18, my mother suggested I start building credit for myself. When I applied for a credit card, the bank asked me if I was going on to post-secondary education. When I informed them I was beginning university that September, they gave me $5000.00.
Do you see anything wrong with that story?
The problem is that I said, “the bank gave me $5000.00”, instead of “the bank lent me $5000.00”.
And that, precisely, is the problem with young people and debt. The reality is that too many young people view credit as part of their income; money that was given to them. We forget that while we might have all this money available to us today, we’re going to be paying that back tomorrow, and the day after, and the day after, and the day after that.
If you’re young and in debt, here are a few pointers on how to not let debt consume you.
Start saving as soon as possible.
Its important to get into the habit of putting money away, even if you are currently in the process of paying off debt. Some people’s logic is to pay off debt first, then start saving. This sounds like a great idea, but we are all prone to unexpected expenses, and without an emergency fund, we end up using credit for emergencies! That often lands us right back where we started.
If you can put away just $25 or $50 every paycheck you’d be surprised what you would have in just a few months. While saving for the first time can be very hard, you get accustomed to living on a few bucks less each time. Chances are, this money would have been spent on frivolous things like McDonalds or drinks at a party.
Tip: Have a set amount of money automatically deducted on your payday and put into a separate account so you won’t have to depend on your self-discipline.
Come up with a realistic repayment plan.
Going online and doing some number crunching helps to map out what your repayment future will and should look like. With a credit card cost calculator, you type in the total amount owed on each credit card, along with the annual interest rate, and the calculator will tell you how long it will take you to pay off using your minimum payment, and then it will tell you how long it will take to pay off using a different monthly payment.
If you have an idea of how long you want to give yourself to pay it off, you have the option of entering how many months you intend to pay your debt off in. It will give you a monthly figure, and if you can work that into your budget, you’ll be debt free in as short as you will allow yourself to be.
Tip: For a good credit card calculator, try: http://www.debtcanada.ca/budget-calculators/credit-card-payment-calculator
Debt can be a pretty scary thing, but letting it intimidate you and stop you from living your life is pointless. Instead, be proactive about your debt. Challenge yourself to get it paid off in one year or two years, or however long you need.
If there’s anyone who knows the sacrifices that must be made in order to pay off debt, it’s me. Remember that $5000.00 that the bank gave me? I’m still paying it off 4 years later.
The first two years were the hardest because I was so down and out about being in debt that I ended up drowning myself in my own misery. But after doing a lot of research on money-saving, I felt a little more empowered to take a different approach to my debt.
Perhaps the highlight of my financial life so far was when it came time to renew my credit card earlier this month. I kindly declined the bank’s offer to reactivate my Visa for another four years.
It was a hard decision to make, especially when the voices in my head kept asking questions like, “But how are you going to pay for parking?” and “How are you going to buy stuff online?”
But I made it anyway.
Tip: Never miss a minimum payment on a credit card! No matter how much debt you have, if you can prove you are responsible enough to make your monthly minimum payment on time, your credit rating will not be jeopardized by the money you owe. All the bank wants to know is that they are still making money off of your minimum payments.
The stress that can come from not being in good financial standing can do a lot of wear and tear on our bodies, our minds, and our overall wellness. But being in good financial standing doesn’t mean not being in debt.
It means doing something about it.