Millennials are done being called reckless spenders. See how they are killing their debts and starting to live life debt-free.
I am a ‘millennial’!~
But I really wonder, if there’s anything special about this word!
Life has turned its back on me. All the big fuss, style statement, fashion, being so punk, rock and roll evenings, all just faded away, the day I realized I am drowning in debts.
This realization was something huge, it made me silent and forced me to regret it.
After a couple of days of fighting with myself, I had a talk with a few of my university buddies. Guess what? They are also dealing with the same problems. I learnt that student loan is probably the second major debt after credit cards, we all millennials are facing!
But we Millennials are seriously done with debts, and we have already started taking measures to fight those devilish amounts.
In this post I will be discussing the several ways millennials are paying off debts, and if you are a millennial yourself, then welcome to our party of ‘debt fighters’ (That’s what we are calling ourselves lately, fancy eh?).
When me and my friends sat down with our debt amounts 6 months ago, we devised suitable plans to kill our debts one by one.
I will try to help you out with the same plans, if you really want to know how you can pay off debts smartly being a millennial!
Zero-based backward budgeting:
The first thing we figured, when I sat with my other debt fighters, is that the only way we can come out of the debt mess is with the help of a proper budget!
So we did our own mismatching and put our own ideas, and finally came up with zero based backward budgeting.
Here’s how it works.
Backward budgeting, as the name suggests is a reverse approach to your finances. Usually we first spend, then whatever’s left of our income, we throw it to savings.
But with backward budgeting, we will first save, then whatever’s left, will be used for spending!
Your debt fighting is not only about dealing with debts, but it’s also about building savings for future expenses so that you can avoid debts in the long run.
So after we reversed our approach to personal finances, we then followed zero based budgeting for the amount we were left with after we deducted savings from our income.
With zero based budgeting we assign every single dollar of our salary a specific purpose.
We make a long list of our to do and probable expenses for the month. Then we add those amounts and see whether or not it’s covering our total income. If it’s covering then we are successful with our budgeting, if not, then we forcefully assign our left over dollars a suitable purpose.
Like my friend uses those extra dollars to do extra savings, while I make extra payments for my debts, if I am left with spared dollars.
Example of how zero based backward budgeting works:
If total income I = $10,000
Savings amount S= $500,
Then spending income is I – S= $9500
After backward budgeting, our income is standing at $9500, and from this amount we will be doing our expenses.
The list of expenses should look like this:
Groceries – $400
Utility bills- $600
Debt payments – $2000
And the list continues.
So if the total expenses are rounding upto $ 9000, then you are left with extra $500, which you should put to some good work. Say extra savings, or do extra debt payments.
How we are mending our spending habits?
If our plan is to clear debts, then we should hit the root of the problem. Debt problems are behavioral than financial.
Maximum consumers incur debt due to spending habits.
There’s no harm in maintaining a frugal lifestyle and living on low mode, if you can evade debts by doing so! Infact I know of a minimalist family who finds comfort in tiny living. You can read the family’s RV lifestyle and get inspired.
Few tips to improve spending habits:
Always know your limits, and then indulge in spending. If you believe that you can’t bear more than $500 each month for luxury spending, then $500 is your limit.
Get a job, that pays you well, and can sustain your livelihood. A good source of income is must in paying off debts.
Save more than you spend.
Use credit cards only when needed, like for emergency purposes, and always try to use cash for day to day expenses.
Never go for payday loans, and other credits that carry high interest rates.
- Before you buy a costly item, see that it will be of some real good use, and you won’t suffer a loss due to buying the item.
Other options millennials are taking to kill debts:
With huge debt amounts, it’s not possible to clear your debts by only following a budget.
Many of my friends, and me, approached settlement companies, to reduce our debts significantly. To tell the truth, not all companies are bad, and we were helped a lot by the financial coaches.
So I would suggest you to find out the best debt relief option, and see how much you can save on your overall debt payments. As the slogan goes among the various debt relief companies, “The older the debt the lesser you have to pay”.
But things are a bit different with student loans. I too have my grad school loan hanging over me.
Student loans require different pay-off options. The Federal Student Aid site has a good post regarding options to repay student loans. Hope it will be of some help to you.
I won’t be talking about secured loans like mortgage or car loans, as I have recently got my own car, and right now live on rent, so don’t have much idea about it. But as simple as it gets, if you can keep on making steady payments then you won’t be ruined by debts.
Guess I will end my post here, as the more I will talk about debts, the longer will the conversation get!
About the author: Andy Masaki is a blogger and financial writer associated with the Oak View Law Group. He is a debt expert and a member of several online forums where he shares his advice as well as tips to lead a financially independent life. Follow him on Twitter