The Most Effective Ways To Avoid Bad Debt As A Young Adult

Stepping into adulthood is a scary and alien experience. There will be many things that you are exposed to that perhaps you have never been taught or dealt with before. Debt is not something any of us experience personally as a child, however, it can have detrimental effects if people aren’t taught how to avoid it or at least build up good debt.

With the introduction of bills, food shopping, and credit cards all being pushed into your face at once, it can be overwhelming. Perhaps you also have concerns about your student loan and how the repayments will affect you. Ensuring that you are living within your means is vital if you wish to have a cash surplus monthly, and to avoid bad debt full stop.

If you are looking to improve your financial literacy and learn how to avoid falling into bad debt, take a look at the following tips:

2. Caution With Credit

Credit cards will be pushed onto you by a credit lender just as soon as you can qualify for one. The people closest to you will likely recommend that you get a credit card to boost your credit history if you have no history of credit or making repayments. It is of course a great idea, however, credit card lenders essentially run their business based on you getting into debt.

Credit cards have high-interest repayments, therefore they will bank on you missing repayments, or spending a large chunk of money and not being able to pay it off straight away. If you do not need credit soon on a car or other expenses, perhaps find a credit card to pay for small expenses such as transport. Never use the limit of the card, and pay your money back to the card straight away.

2. Build Credit Score

Credit is unavoidable if you are looking to buy a house for example, therefore if you want to put yourself in the best position it is important to also build your credit score. Having a good credit score will result in giving you access to lower interest rates, which therefore means you will have reduced repayments over the period you are paying it off.

3. Have Saving Pots

You should always have savings for emergencies and also to save for the important things you want. It’s recommended that everyone should have around 6 months’ worth of savings available for the worst scare scenario. This might seem like a while away until this level of savings can be accumulated, but you will slowly see yourself reach the target. Also, most banking apps will allow you to make separate saving pots for whatever you are hoping to purchase in the future. Having savings will also show the bank that you know to manage your own money.

4. If You Can’t By Three Times, Don’t Buy

As a young adult, it is easy to feel pressure to meet the same level at which you see your peers. This might include spending money on designer items just because it is trendy at the moment. People who are easily influenced into buying such commodities are often the ones that don’t know how to manage money and find themselves in huge debt as they get older. Go against the grain, and if you can’t buy an item three times don’t bother buying it. This primarily applies to items you buy with disposable income, and usually, they are items that you do not need. Stay within your budget and your financial means.

5. Create Monthly Budgets

On the topic of budgets, you should create a clear financial plan of exactly where your money is going into. For example, you should calculate all of your direct debits which are bills, food expenses, and travel costs, and also be honest with how much money you spend on non-essentials. Once you have a clear view of where your money is going, see where there is room for savings and what might be taking you into minus money each month. If you want to avoid debts then you should be a struct, and if you find it difficult ask your partner or a close friend to be your accountability partner to ensure you’re staying within your limits.

6. If You Have Gone Too Far

If you have dug yourself into large volumes of debt at a young age, try not to worry too much. Of course, you should learn from your mistakes to ensure that you will avoid creating an even bigger problem. Here are some tips for managing your existing debt and paying it off faster:

Make sure you pay your bills on time
Pay off the biggest debt first
Pay more money back than the minimum required monthly
Apply for an IVA to consolidate a group of debts

Conclusion

Taking the necessary steps whilst you are young is the best thing you might do for yourself to avoid debt. Simply taking the time to financially educate yourself and review your current outgoings would be a great step. If you have found yourself struggling with debt, make sure you get professional advice from a financial advisor.