How Millennials Can Reduce Debt & Invest In 2019

By Lorena Roberts on January 22, 2019

Today’s college students are more burdened with student loan debt than ever before. 2017 graduates averaged almost $40,000 in debt, which is six percent higher than the average amount of debt from the class of 2016. Another well-known fact is that Americans owe more than $1.48 trillion in student loan debt. There are about 44 million borrows of student debt in our country — more than likely you know someone (or yourself!) who has taken out student loans to invest in themselves and their education. Our total credit card debt in the US is less than our student loan debt. Hard to believe, isn’t it?

More than likely, if you’re reading this, you’re in some kind of debt. It may or may not be student loan debt. And maybe, just maybe, you haven’t gone to college yet, and you’re reading up on how to avoid a mountain of debt for a four-year degree. Here’s my advice to you: if what you’re going to major in during college is going to give you a salary that is, on an annual basis, more than the amount of loans you’ll have to take out for school, do it. But never, ever should you take out loans that outweigh your possible salary once you graduate.

As we start the new year, you might feel like you’re starting 2019 out in a bad financial situation. You might have made some bad financial decisions early on, and maybe you’ve opened some credit cards that are now maxed out. On the other hand, maybe you’re starting 2019 in an “okay” financial situation, but you’re hoping it gets better by the end of this year. When the ball drops for 2020, I think we’re all hoping that we have more money, we’re happier, and we’re healthier. So as the new year begins, you’re probably looking for tips on how to improve your credit, get yourself out of debt, or make a big purchase. If that’s the case, this is the article for you!

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Where should you begin if you’re living under a mountain of debt? 

First things first: evaluate your monthly budget. How much are you spending by going out with your friends for drinks? Are you attending every single trivia night in your city? Is that really necessary? Cut down your “entertainment” spending first and foremost. After you re-evaluate your entertainment budget, the next thing you should look at is how much you’re spending on “extras.” Most students do a little weekend shopping, eat out too much, or splurge on things they just don’t need (probably Amazon). The second thing you should do after looking at your “entertainment” budget is look at your spending habits from the past few months and evaluate what you could have gone without.

Next, you need to start looking at your debt to income ratio — which you might think is tough to do while you’re in school or if you’re a new graduate. But it’s really not bad. Simply add up all of your monthly bills that you’re required to pay. (This is called “existing.” What does it cost you to exist as who you are? Rent, credit cards, student loan, gas, food, etc.) Once you’ve added up everything you have to pay, look at your net income. (This isn’t how much you make in one month, this is how much you bring home in one month.)

Evaluating your debt to income ratio is how people know they’re living paycheck to paycheck. You aren’t going to get very far in life if you’re barely making it month to month between your income and your bills. So one of them has to change. You either need to lower your monthly bills or you need to find a job making more money.

In order to find a job making more money, it might require you to invest in yourself through education. There’s a chance you aren’t in a financial spot to do so. This means the next thing you need to do is: pay your bills down faster. 

The absolute first thing you need to know about being in debt and trying to get yourself out of debt is: you should never, ever, ever only pay the minimum payment required on any credit card bill. See, credit card companies are funny little suckers — they know they can take advantage of young people who are impulsive. They know they can get you hooked on swiping your little plastic card so you can have the things you think you need; the things you think you’ve just got to have. 

If all you do every month when it comes to your credit card bill is pay the minimum balance, you’re always going to be in debt. Those credit card companies don’t want you to pay off your bill! The interest you’re having to pay is how they make their money. So the first thing you need to do when you get your credit card bill is write a check or make a payment for more than the minimum balance. Otherwise, you’re going to continue to receive a credit card bill every month instead of just paying it off.

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What if you don’t have credit card debt, but you do have student loans? 

Student loans are a tricky little thing. Most of the loans college students are taking out these days have a grace period of six months after graduation before you have to start making payments. This six months should be used to find a job with incredible earning potential (you do have a college degree, after all). Get yourself settled into a place with decently low rent, pay down your credit card bills, and then recognize how much you’re going to have to pay in student loan payments every month. Look at this loan like I taught you to look at your credit card bills: pay more than the minimum requirement and you’ll see a much more drastic change in the amount you owe. 

Investing in yourself can be great, but student loans are real. They’re something most college students have to deal with after graduation. Don’t feel like you’re the only one fighting this battle, just realize that unless you bite the bullet and start paying it down — you’re going to be looking at making payments for a VERY long time. The longer you make payments, the more interest it’s likely that you’re paying. The faster you can pay it down to nothing, the less money you’re going to waste on interest.

 

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You might feel like you don’t have a lot of money, but you want to start investing to secure a stellar financial future. Where do you begin? 

Instead of holding onto your cash, investors.com suggests you invest in stocks and stock funds. In the long-term, returns on cash investments look good, but investments in stocks look better. The key is to start investing when you’re young. Investors.com even suggests that contributing $5500 per year to an “S&P 500 index fund, it will be worth almost $4 million after 42 years.”

That sounds a lot better than earning nickels and dimes on the dollars of what you have sitting in the bank, doesn’t it? Absolutely.

Should I already be worrying about retirement — even if I’m in my early 20s? 

Yes. Absolutely. It’s never too early to start saving for retirement. So as you’re evaluating your financial situation and trying to figure out how you’ll pay for your apartment in a swanky retirement home, you should know that the earlier you begin investing, the bigger the payout is in the long term. Let’s run some numbers:

According to CNN’s money.cnn.com, it is absolutely imperative that you understand the amount of money you’re missing out on just by putting off stocking up for your retirement by a few years. Here are the examples they use:

If, at age 25, you begin saving $3000 per year. Then after 10 years, at 35, you completely stop saving. By the time you’re 65 (which we’re loosely using as “retirement age,”) you will roughly have about $338,000 in savings. Seems pretty crazy, doesn’t it?

Now let’s imagine that you put off saving for retirement until you’re 35. Since you’ve missed out on saving for a few years, you decide you’re going to contribute $3000 per year for the next 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $303,000. There’s $35,000 in difference because you put off saving for a few years.

So what’s the lesson to be learned from this? Start investing early.

But what should I invest in? How do I know if I’m investing in something worthwhile versus making a bad decision? 

Sometimes people get intimidated by investing in the stock market. I understand this completely. But there are other options. You don’t only have to invest in the stock market — there are definitely more options to choose from. If you’re looking for advice on how you should invest, seek out a financial advisor. Many people think they have to have hundreds of thousands of dollars in savings before an advisor will even give them the time of day. But this isn’t the case.

If you can’t help or stop yourself from wanting what you want, and you really want to make a big purchase, where should you begin? 

Your first step towards buying something that’s much larger than you would typically buy, you need to split it into chunks. Save for it in steps. There are several ways you can do this: some people will save for large purchases with cash in a clear jar.

The reason for this is so you can see yourself saving as you go. Then, when you go to make a large purchase, you won’t see a difference in your bank account. Instead, you’ll use the money you saved over a number of weeks.

Split up the purchase into reasonable chunks. You might think of paychecks as a reasonable measure of time. For instance, set aside $50 every paycheck, and after a few months, you’ll have enough saved to buy a large ticket item.

There are many students, today, who are not in ideal financial situations. In fact, it’s hard to get yourself to a place where you feel financially stable and happy.

When you’re a college student, you feel overwhelmed by finances. You’re drowning in debt, you don’t have much time to work, and you don’t feel like you’re bringing in very much money on a weekly basis.

However, there’s a time and a place for you to get yourself in a more stable financial situation. Don’t feel like you have to immediately have your life figured out. Sure, there’s a pressure to make sure you get yourself together and you have a stable life after college — but that’s exactly it – after college. You have time to get yourself financially settled. The best thing you can do for yourself in the meantime is to make intentional and smart financial decisions.

In her spare time, she enjoys spending time with her pup at the dog park and binge watching Netflix with endless cups of Hot Cocoa.

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