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7 Reasons Why Young People Are Drowning In Debt

One of the most significant sources of headache for young people is their growing indebtedness. Several people believe that debt is indispensable in life. Although this looks true, debt has a huge opportunity cost. For instance, it postpones your plan to build as much wealth as you desire. Also, it makes it challenging to live fully in the present. There are many reasons responsible for this lifestyle. Hence, we have discussed seven reasons why young people are drowning in debt.

1. Poor Budgeting Skills

The result of numerous consumer surveys point in the same direction – the majority of the population do not have a budget. How do you intend to track your income and expenses when you have no framework in place? When asked about their monthly income, many people respond – “I don’t know where it all goes.” That attitude leads to wasteful spending. Learning how to create a budget will give you an instant overview of your income, expenses, and balance.

2. Addiction to Credit Cards

Credit card companies release enticing adverts that seduce young people to keep them close. Do you have an emergency? Just swipe it. Did you come across a nice pair of shoes? Just swipe it. This instantaneous lifestyle of getting anything you want with ease is responsible for many millennials drowning in debt. If you have your credit card with you, you can quickly pile up debts. A good recommendation is to throw them away.

3. Lack of a Debt-Repayment Plan

Have you heard the saying that – a goal without a plan is just a wish? Well, it holds concerning debts. Leaving your debts to chance is counterintuitive. Many young adults have no concrete plan to repay their debts, which explains why they keep drowning in them. There are several repayment strategies that you can leverage. For example, the debt snowball strategy says you should start with your smallest debt. Pay it off as quickly as you can. It inspires optimism and confidence that you can pay off the remaining ones.

4. Financial Incompatibility with Spouse

Is your spouse a spendthrift? If yes, that may be the main reason why you owe tons of money. Many people downplay financial compatibility just before they get married. Paying off your outstanding credit requires all the support you can get. Besides, you tend to inherit their liabilities. Thus, you need to be on the same page concerning being debt-free and building wealth. If your spouse exhausts their income on shiny objects, you will find it difficult swimming out of debts.

5. Appetite for Gambling

Young adults are turning to gamble in large numbers. Often, the lure to hit it big can be overwhelming. Coupled with the extravagant lifestyle of lottery winners, millennials are tempted to test their luck. Moreover, once you try it, you would not want to stop until you recoup your losses or win big. You can channel your gambling expenses into a savings account, an emergency fund, or a financial literacy course.

6. Apathy towards Saving Money

When emergencies occur, many young people are always ill-prepared for them. Without thinking about it, they turn to their credit card. Having a savings account is a simple task with huge rewards. In the event of laptop damage, job loss, or illness, you can count on your savings.

7. Low Financial Literacy

The only knowledge of managing money for many young people comes from their parents. Except your parents are wealthy, then you might not be getting excellent advice. If you do what your parents did, you will end up where they are financially. Unfortunately, that is where many millennials are.

Everything You Need To Know About Overdraft Protection

Have you ever been stuck on a purchase because you ran out of credit? Often, you either incur overdraft fees or leave without your item. This draft ranges from $30 and above for a single transaction. Besides, for a regular shopper, this problem can accumulate into hundreds of dollars. However, bounce protection becomes necessary to avoid a negative balance. In this article, you will find everything you need to know about overdraft protection.

1. Meaning of Overdraft Protection

This term refers to the service that banks provide to prevent a customer’s account from going below zero. It does not matter whether this is a debit or credit card payment, electronic or USSD transfer, or check. When you request unavailable funds, you trigger a non-sufficient funds (or NSF for short) fee. This is also called an overdraft fee. As a result, your purchase will still go through, even if you have limited funds. If you connected another account to your checking account, your credit partner automatically transfers the deficit. Otherwise, the bank covers the cost.

Conversely, a bank can bounce your payment during such occasions if you have not pre-authorized them. Without this protection, you may pay up to $35 overdraft costs for a single purchase. Also, the merchant might pay the penalty for the failed payment. However, banks have different policies concerning their modus operandi and charge for this service. Consult your financial institution to ascertain your suitability for the service.

2. Benefits of Overdraft Protection

It ensures that your transaction goes through. Even if you have exhausted every cent in your base account, bounce security allows you to perform your predetermined transaction.
It saves you during an emergency. When a contingency occurs, getting a friend to lend you money might be challenging. If you have apathy towards borrowing, a bounce security policy can be a lifesaver.
You avoid penalty due to a failed transaction or making a late payment. If this happens several times a day, you would have saved hundreds of dollars.
It is cheaper than paying an overdraft or NSF fee. You can save a few dollars off your total transaction fee.
It protects your pride. No one wants to have a reputation for failed promises or transactions. Bounce security comes in handy against discomfort or shame due to bounced checks.

3. Drawbacks of Overdraft Protection

You have no control over how much your bank charges. Unlike normal transaction where you determine the amount to pay, you are at the mercy of the financial institution. Besides, you either pay what they demand or leave.
It relies on your backup account to go through. When you exhaust the content of your linked account, it poses a challenge to complete payment.
Your bank can cancel it at any time if they feel you are taking undue advantage of it. Ideally, it is an emergency initiative. However, if you make it a regular occurrence, it might backfire and show up as a negative expense.
It predisposes you to poor habits. Although you may always have a reservoir when your account runs dry, it increases your indebtedness over time.
If you borrow money via overdraft, you incur interest on the principal until you clear your debt.

4. How to Avoid Paying for Overdraft

You have a choice whether to apply for overdraft security or not. Here are some tips on how to go about it.

Just do nothing. Ideally, the bank declines any transaction when you have an insufficient balance. So, if you can cope with the effects of an unfinished payment, you can go ahead.
Research overdraft policies of different banks. Some financial institutions have designed more customer-oriented programs. Find out the one that resonates with you and switch appropriately.

Nine Financial Tips for Millennials

Your finances dictate how you live, where you live, and the things you do. Since it is so essential to living fully, we have curated the best financial tips for millennials. This article will set you on the right track towards being in charge of your financial future. Whether you are just starting or you are an expert, you will find it valuable.

1. Know your credit rating

If someone asked for your financial report card, what would you present? Your credit score is a numeric representation of your financial attitude and aptitude. To get a pass mark, you need a score of 700. Millennials with over 750 are exceptional. Hence, know where you stand financially. This can be a huge help when it comes to taking on credit via guaranteed payday loans and other types of similar short term finance.

2. Be Clear About Your Debt-to-Income Ratio

Your debt-to-income ratio (or DTI) refers to the percentage of your monthly income that services your expenses and liabilities. Income covers money from salaries and wages, side gigs, tips, and gifts. When you know what goes out and the balance, you can decide whether to find another income source or downsize your lifestyle.

3. Always start with a budget.

Change your perspective about budgeting. Many people see a budget as a punishment to live a miserable life. A good budget is an essential tool that empowers you to track your income and expenses. Also, it allows you to build wealth and live life on your terms. Moreover, tie your budget to your financial goals.

4. Dedicate some funds to an emergency account

Learn to save. Every personal finance classic mentions this strategy. However, go beyond savings to funding an emergency account. No one is immune from emergencies. For instance, the loss of a job or a loved one is a common exigency. When such predicaments occur, you can count on this fund.

5. Begin investing right away

If you start investing today, you would have saved and made more money than if you start next year. Experts have highlighted the principle of compound interest as the eighth wonder of the world. You gain interest in the initial principal and the interest that it generates. That way, you can hit your financial goals faster.

6. Manage your credit card debt

Millennials spend tomorrow’s money today via their credit cards. Although incurring this debt is easy, paying it off is challenging. The reason is not farfetched. When you carry over your credit card liabilities from the previous month, you pay interest on it. Add that to the current month’s purchases, and it becomes gargantuan. According to Sallie Krawcheck, Managing Director of Ellevest, ensure you settle your credit card liabilities before they get out of hand.

7. Use personal finance apps

In the 21st century, you cannot afford to be financially illiterate. There are numerous mobile applications on the Play Store and App Store that provide quality financial education. For instance, there are apps for budgeting income, tracking expenses, intermittent savings, and investing. Besides, you can use them anytime, anywhere.

8. Speak with a financial advisor

Personal finance is a critical field that requires expert advice. Getting the right advice early can prove to be a lifesaver. Rather than waiting till you are in your forties or fifties, schedule a visit to a financial advisor now. Do your research to find advisors that you can afford. Discuss your financial goals and salient areas like marriage, studies, mortgage, and how they will affect your finances.

9. Calculate your net worth often.

Do you know how much you are worth right now? Take an inventory of all you own, including your income, savings, properties, and investment portfolios. These represent your assets. Then, make a list of everything you owe, including your expenses, credit card payments, and debts. These represent your liabilities. Your assets less your liabilities is your net worth.

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Author: Katy