The youth of today are facing some of the greatest difficulties when it comes to managing their finances and getting through their lives free of debt. We are all aware of the detrimental effect that debt can have on our lives, from taking away our assets to damaging relationships and causing health problems from stress and the strain of trying to stay in the black.
There are numerous factors that can be responsible for the accumulation of debt in the younger generation- it has to be said that there is a great deal more temptation when it comes to spending our money today than there might have been 50 years ago. Much of this is due to new developments in technology and the fear of missing out often caused by social media platforms, making borrowing money all the more enticing.
While the younger generation can seek the help of short term loans in times of financial need, it is important to learn more about how to better manage ones finances early on in life. There is a lot that may drive younger adults to take out short term loans, these can include rising costs, less income as well as unstable income and lack of options. Better financial management will help to ensure that the debt-cycle is broken early on and will make applying healthy spending and saving habits into everyday life all the more effortless and worthwhile.
Understand the various different types of debt out there
One of the best ways to ensure that you avoid getting yourself into debt is to have a firm grasp on the range of different debt types there are out there. The younger generation will be dealing with far more types of debt than their parents or grandparents had available to them. Here are some of the basics that you should know about when it comes to loan types:
- Instalment loans– these have higher interest rates (as they are unsecured) but can be obtained quickly and will need to paid back in regular repayments.
- Bank loans- these are typically ideal for those who are looking for a mortgage when purchasing a house of to buy a car etc. They typically offer lower interest than an instalment loan but are harder to obtain and tend to be paid back over an extended period of time, from years to decades, for example.
- Secured vs. unsecured loans- knowing the difference between the two will allow you to be more informed about what kind of contract you are entering yourself in to. Bank loans are often secured against your property or another piece of collateral, whereas short term loans are often unsecured, so the lender won’t require you to offer an asset or assets as security in case you fail to make repayments.
- Payday loans– these are loans that are taken over a short-term period and are paid back in full or in part on your next payday. Payday loans can also be paid back early as there is no extra fee if you decided to do this.
Avoid using credit cards
In order to remain debt free, it is often recommended that people stay away from using credit cards. Credit cards can be very expensive, and you could end up paying more for the money you spend in the long term. Credit card debt can very easily add up and this is not ideal for young people who have yet to establish safe and manageable spending habits that will allow you to manage your account responsibly.
If you already have credit cards, it may be worthwhile to work out a budget that will allow you to get rid of part of the debt and work towards consolidating your loans. It is crucial to always pay a minimum sum each month when it comes to reducing the amount of debt you have.
Seek assistance and help when needed
Something that all young people should keep in mind is that pride and shame should not come in the way of you asking for help should you find yourself in a problematic financial situation. Be sure to get in touch with your creditor if you are finding that your debt is getting out of hand.
Create an emergency fund
An emergency fund is exactly what it says on the tin, its useful when an emergency comes along and you don’t have to rely on getting into any further debt. There is no right answer for how much you should save into your emergency fund, however, some people do recommend up to half a year of expenses. Keep this emergency fund in a separate pot so you aren’t tempted to dip into it for non-emergencies.
Generic advice is not a service regulated by the Financial Conduct Authority.