Young people are faced with a number of challenges when it comes to finances. Creditors try to lure college students with credit card offers that put them in debt at a young age, and some young people don't take the time to learn how to manage money as teenagers or young adults. If this sounds like you, you can start correcting those problems today by taking common-sense steps to managing your debt.
Understand the Different Types of Debt
It's important that you first understand the different types of debt. One type is an installment loan. This is a loan that requires regular monthly payments of the same amount, like a mortgage or car loan. The other main type of debt is the revolving account. With this type of debt account, you make a payment that can change every month depending on the balance. You should also understand the difference between unsecured and secured debt. Unsecured debt is a loan of funds that is not backed by tangible property, while secured debt is backed by property, like real estate.
Avoid Credit Cards
Avoid unsecured debt whenever possible, particularly credit cards. Credit card debt is very expensive — it often comes with higher interest rates than other types of debt accounts. Credit card debt can also persist indefinitely if you don't manage the account responsibly. If you already have credit cards, create a budget and come up with a debt reduction plan to rid yourself of this bad debt. The key is to pay more than the minimum payment each month to reduce the debt more quickly and stop using the card.
Avoid Rolling Car Debt
Some young folks allow themselves to get into a cycle of buying a new car every few years or so, which puts them on the hook for paying an installment loan debt continuously. This is not necessary — don't be obsessed with having a shiny new car every few years. Buy one car, pay off the loan within five years, and then try to keep it for at least another five years before entering into a new loan. This gives you five payment-free years when you can save your money toward your future instead of sinking it into a new car.
Ask for Help
When you're in over your head with debt and bills as a young person, don't let pride or shame stop you from asking for help. Consult a credit counselor immediately before the debt situation gets even more out of hand. Start by calling the National Foundation for Credit Counseling — a representative refers you to a local credit counselor in your area who can advise you on how to better manage your money and debts.