The best investment is to pay off your debt.
According to data from the New York Fed Consumer Credit Panel, many Americans between the ages of 18 and 29 have collectively accumulated a whopping $1.05 trillion in debt. Student loans form the highest proportion of young people’s debt burden – but you already know that.
You can eliminate debt, and be debt-free by the time you are in your 30s. There are incredible debt-free testimonials of young people who have managed to dig themselves out of a $100,000 debt.
You, too, can follow suit and join the debt-free bandwagon. Below are five suggestions to help you shake the shackles of debt in your 20s.
Prioritize Your Debt
Getting out of debt is not easy.
Research finds that a fourth of Americans believe they will die in debt. However, those in their 20s are more optimistic about getting out of debt. The fact that you are reading this article shows your optimism to get out of debt.
If you prioritize your debts, achieving a debt-free status is possible. Financial expert and author of the bestselling book, the “Total Money Makeover,” Dave Ramsey, advocate for the snowball effect. Dave suggests listing all your debt from the largest to smallest. Then continue with the regular premium, but dedicate more money than the stipulated monthly premium to focus on paying the most modest loan off first.
Continue with the trend in ascending order until you complete paying off your most significant loan. Clearing your accumulated debt one step at a time should keep you motivated.
Only Borrow What You Need
A student loan is a good debt with a promise of better future earnings. However, sometimes your FAFSA (Free Application for Federal Student Aid) loan package includes more money than what you need. Of course, you can take the whole amount.
However, if you are keen to be debt-free when you enter your 30s, then it’s advisable only to borrow what you need. Also, ensure that your future projected income can validate the loan you are taking up. A good practice is to research and ensure the debt you are accumulating is not exceeding your potential future income.
Avoid using credit cards if possible, as it may give you the false confidence that you can afford a particular item when, in reality, you are accumulating debt. American rapper and billionaire, JAY Z, advises that if you can’t purchase an item twice, then you can’t afford it.
Avoid Conspicuous Consumption
If you are spending your money without a budget, then there’s a 99% chance you are spending it on things you don’t need.
The company you keep influences your money habits. A friend, a colleague, or even a family member buys something fancy, and in an instant, you want in on it too. Also, social media is the most significant influencer on how we spend our money based on the temptations of what we encounter online.
What many young people don’t realize is that others live by the mantra, “fake it till you make it.” The fake Instagram life of luxury is driving conspicuous consumption by young people who are trying to keep up with their peers. Many are running into debt instead in an attempt to impress.
The best advice is to live your life and dial back on social media. The earlier you learn to resist the allure of buying items that conspicuously portray your financial capability, the better you are from clearing your debt.
Explore Alternative Income Stream
To get out of debt in your current circumstance, it necessitates that you get additional income to support your loan repayment. In addition to keeping your money in check, you will have to hustle hard in your 20s.
Taking on additional work means you will have little time for social life. John Kapetaneas, a journalist based in New York city, had to sacrifice holiday and vacation to take up additional work and supplement his efforts in clearing a $111,000 debt he had accumulated. He took up freelancing gigs.
However, if you want freedom, then the best way is to have money working for you instead of you working for money. It takes time to establish a system that makes you money even in your sleep, but it’s worth the investment. Research and find ways to maximize your income while minimizing time spent.
Build an Emergency Fund
While trying to clear your debt, saving money may seem counter-intuitive. However, that is far from the truth. One of the traits of debt-free individuals or those managing their debt well is savings.
Generally, it is advisable to have six-month living expenses in as emergency expenses fund. Savings will cushion you from the temptation to get into additional debt in case of an emergency. You will have funds readily available.
Therefore, as you prioritize your debt, also prioritize your savings.
Simplify your lifestyle. This could mean selling your car or even downsizing your house to cut on unnecessary expenses. Besides, in the long run, it will pay off as you become another debt-free success story.