How to Avoid Making the Worst Financial Mistakes Young Adults Are Accused of Making
When young adults enter the world of credit, they can make some costly and/or disastrous financial mistakes. Many of these mistakes are the result of inexperience, lack of knowledge, poor decisions, or some combination thereof. The biggest problem with young adult debt is that they don’t realize that they are in deep financial trouble until it’s way too late. Here are some of the most common and costly mistakes young adults make when trying to manage their credit accounts.
One of the first mistakes many young adults make is trying to handle their credit cards by themselves. Rather than getting help from a credit counselor, you’ll save money by doing it yourself. You’ll also find it much easier to manage your own credit cards because you’ll be less confused (and a bit overwhelmed). Credit card debt can be extremely confusing and intimidating if you try to tackle it on your own, so using a credit counselor will give you more detailed information about how things work and can help give you direction.
If your debts are actually a symptom of an even bigger problem, then this isn’t the best course of action for you. If you have more than one credit card, you’ll be paying a lot of interest on them as well as extra fees and other hidden costs. This can add up very quickly. It’s not worth the risk. Just ask yourself whether or not it’s going to be easier to stay clear if you cut back on your credit-card use.
Another common mistake young adults make is buying too many products at once. Buying several months’ worth of groceries, oil change coupons, an extended warranty plan, etc. can all be miscellaneous credit card debt that just piles up without being handled. You can keep track of your credit card debt by creating a spreadsheet online or using Microsoft Excel.
If you run up a big amount of credit card debt, one of the most important things you can do right away is to stop using those cards. While it’s true that you’ll still have a few paychecks to support your basic living expenses, you’ll also need to save more money. For example, if you’re buying toys for your kids and not spending that much money, you’ll want to cut back on those impulse purchases.
Be wary of getting into another debt trap by taking out a cash loan to pay for something you already have. These can often be hard to pay off because you’ll have to pay a ton of interest on them. You may end up paying thousands in interest on top of the original credit line. Instead of doing that, look for a line of credit that offers a lower interest rate and is for less than the total amount of what you have to repay each month.
Never miss a payment. Miss one payment and you’ll end up in credit-monitoring services. It’s not worth risking your financial future over. It would be much better to make all of your payments on time. If you miss one payment, contact the lending company immediately and work something out. There are many solutions available for those who have financial difficulties.
Know your limits. Be realistic about how much you can pay off each month. The loan or line of credit you get will help you with that. But if you overextend yourself, you’ll find yourself in over your head. Don’t overextend yourself.
Don’t take on too much debt. Young adults can easily get themselves deep in credit card debt, which is very difficult to get out of. It’s important that you only take on what you can reasonably handle. You’ll find it much easier to make payments on time when you only have the smallest amount of debt.
Don’t borrow money to pay for school. If you need to buy something for school, make sure it’s paid for in cash. Use student loans or a grant that’s been set up specifically for funding school. Otherwise, borrow from family or friends or try to get a loan from a financial aid office. You’ll generally pay more for borrowing cash than you would for using a credit card.
Avoid buying homes when prices are low. Housing prices are dropping all over the country. Don’t borrow money to buy a home when interest rates are so high. While you’ll make more money in the long run by investing in a home, you’ll be setting yourself up for a bad financial future.