What to Do If You're Young & in Debt?

Debt is one of the most common problems for consumers today, and it often leads to bigger financial issues in the future. If you are young and you find yourself in a mountain of debt, your situation can seem bleak. Luckily, you have plenty of time to get the situation under control.

Stop New Debt

One of the problems that young people tend to have is that they spend more than they make. They might have a decent salary at their job, but they still end up in debt. This is because they try to live above their means. If you want to eliminate the debt problem, you first have to stop using credit cards -- get rid of them or make them inaccessible. Don't open any new credit accounts or borrow any more money.

Change Spending Habits

If you want to change your debt situation, you need to change some of your habits. This means that you should evaluate where you spend money and alter some of these choices. If you go out frequently, you might have to stay in and relax a bit more. If you eat out all the time, you might choose to cook more often. Look for little ways that you can save money. You will be surprised how much money you can save each month.

Emergency Fund

When you are trying to get out of debt, you need access to an emergency fund. An emergency fund is an amount of money that you keep in a secure savings account for emergency purposes only. If your car breaks down, you use the money in the emergency fund to pay for repairs rather than use a credit card. Without an emergency fund, you will inevitably acquire more debt while you are trying to pay it off. Start out with a goal of saving $1000 in an emergency fund and gradually increase the amount to two to three months worth of expenses.

Debt Snowball

Once you have a fully funded emergency fund, you can start working on eliminating your mountain of debt. Since you are still young, you have plenty of time to pay off the debt and start working towards a brighter financial future. Start by paying the minimum payment on every account except your smallest one. Pay as much money as you can each month to that account until it is paid off. Then apply the total amount that you were paying on the smallest account to the next smallest account -- in addition to the minimum payment you had been making -- until it is paid. Keep doing this, and your payments will get larger and larger until you are out of debt.