Strategies for Reducing Your Debt
The Millennial generation is very different in attitude from our predecessors, and one of the causes for that is our coming of age in the wake of the Great Recession. Despite being America’s largest working generation, we’re entering one of the worst job markets in recent history while carrying an unprecedented amount of debt. Nearly one-third of us millennials who range from about 18 to 35 years old, have student loans. And our total debt burden can increase significantly as we enter our 30s and add credit card debt and possibly a mortgage to the equation.
Debt can lower your credit score, hamper your efforts to buy a home or a car, limit your opportunities and add unwanted stress to your life. To avoid being saddled by crippling debt that can affect your present and future, here are a few strategies to help reduce your debt burden:
1) Assess and Prioritize Your Debt.
a) Start by refinancing or consolidating your student loans to lower the interest rate. Try to get a fixed rate, even though variable rates are often lower. Then, organize your debt from the highest interest rate to lowest.
b) Make the minimum payment on everything except the highest interest rate debt; this one should receive the minimum plus any extra funds you can pay toward it every month until it’s paid off. Then move down to the next highest interest rate debt.
2) Negotiate Higher Pay — Only a small fraction of millennials have ever asked for a raise. Negotiate for higher pay and use that additional income to pay down your debt.
3) Pay Cash for Your Car — If possible, stay out of car debt completely by saving up and paying cash for a car. If that’s not possible, buy a less expensive vehicle that’s within your budget, put down a larger down payment and negotiate for lower monthly payments. Direct the money you save toward your debt.
4) Invest Aggressively — If you’re in your 20s and early 30s, you should invest aggressively. With retirement decades away, you can afford to ride out the markets, take a few hits, while also reaping great rewards in the process. Adopt an investing strategy that leans heavily on stocks, which have decades to grow.
By adopting these simple strategies, you can begin to reduce your debt, increase your savings and build a stable future.