How to Fight Off Debt Accumulation as a Young Adult?
The accumulation of debt is preventable. Here are some ways to deal with and prepare for debt.
Debt accumulation simply means the growth of debt by constant additions, as of principal of interest.
To prevent the accumulation of debt, you must know the difference between good debt and bad debt.
First things first, you must know that not all types of debt are bad.
Debt usually goes along with high-interest rates, which means that you will be indebted over time. Too much debt can also make it harder for you to apply for new loans, and in one way or the other, it can restrict your life.
Nevertheless, certain debts are considered good. Debt that has future value and can ultimately make your investment worth it is considered good debt. For instance, buying a house using a mortgage loan. It provides you shelter and equity in exchange for relatively small interest payments.
In contrast, bad debt gives no future value. For instance, buying a computer game with a credit card and avoiding paying off the debt will probably come back to haunt you, and leave you with no chance of making it up for the loss particularly when you are stuck with high-interest rates.
We go into debt for different reasons, from irresponsible spending, medical expenses, reduced income to poor savings but in this article, we have come up with strategies for avoiding debt accumulation.
Never settle for more than you can afford.
One of the greatest financial decision you could ever make is about your home. People often make that decision carelessly. When taking a specific home loan, its best to take your time and find out exactly how much you can afford.
Live below your means.
There is also a need to live below your means by making a wise purchasing decision for a month, or a year. Even if it means removing your subscription services, spending less money on utilities and cuisines, preserving your lifestyle and keeping your entertainment to a minimum level.
Keep your credit cards paid off.
Keep your credit card paid as much as possible. Although this might be difficult if you have already accumulated some debt. It might not sound like a big deal but credit card debt is the most damaging and less valuable type of debt you can have. Get rid of it as early as possible before it starts affecting your life.
Minimize student debts by using scholarships
One of the debts that counts as a good debt to young adults is a student loan. Because it is an investment for the future. However, you don’t have to accumulate more debt than necessary to complete your education. Find out scholarships that are suitable for your program. Look for a part-time or full-time job, this will help you pay as much as you can for your education. This will also balance several thousands of dollars of expenses and leave you with limited debt after graduation. Student debt is tricky, be sure to make full use of the money spent.
Create an emergency savings fund.
The best way to avoid debt due to unforeseen expenses is by creating an emergency savings fund. Keep some money every month and develop a habit of never to touch that money unless you need it seriously. Creating expenses for few months will have a huge impact and save you from going into debt for things like medical bills, vehicle repairs, and other essential, yet irregular expenditures that could confront your financial future.
Increase your income.
The quickest way out of debt is you’ll have to increase your income. This will make it easier to get better loans as well as pay off previous debts. We all wish for a higher level of income, but sadly not everyone has the gut to realize it. Expand your income and ask for a raise or promotion in your place of work when there is a need to.
To sum it up, we can conclude by saying…….
To be effective financially, you need to focus on strategies to avoid debt accumulation.
To stay in control of your life you need to understand all the benefits, risks and consequences associated with your finances.
To avoid becoming a victim and limit the possibility of your debt taking over your life, you need to control the debt you acquire.