Entering adulthood often comes with new freedoms and responsibilities, and one significant aspect that many young adults face is managing debt. From student loans to credit card debt and mortgages, navigating the world of financial obligations can be daunting. However, understanding common types of debt and strategies for overcoming them can empower any person to take control of their financial future. I might be biased, but I feel like recent graduates, especially those who started working within the last 10 years, have faced so many challenges to stay afloat. Struggling with student loans, a poor job market, rising costs of living and more can make it so hard to create a solid foundation when you’re just starting out.
If you’re struggling, I can tell you that you are not alone in this journey. I’ve faced it, my friends are dealing with it, and many people I know have lived with different types of debt that affects the ways they spend, how they can save, and the type of future they can create for themselves. Below, I’ll share 10 examples of debt that young folks might struggle with and provide actionable tips for getting over the hump.
10 Types of Debt Young Adults Might Face
Student Loans: Student loans are major challenge for many young adults. While I didn’t graduate with student loans, I really felt for my friends and colleagues who had to pay back loans so quickly, before they found themselves established professionally and financially. To help overcome the burden of high loan payments each month, consider options such as income-driven repayment plans, refinancing at a lower interest rate, or seeking employer assistance programs.
Credit Card Debt: High-interest credit card debt can quickly spiral out of control. As a young adult, having a credit card really made purchases so much easier for me: food, furniture, electronics, and more could be purchased instantly, without me having to want or wait for anything. If you’re experiencing hefty credit card debt that you’re struggling to get rid of, create a budget, prioritize high-interest debt for repayment, and explore balance transfer options to lower interest rates. This strategy helped me shortly after I got married, when I acquired a large amount of debt from apartment renovations and wedding costs. Instead of giving up, Kurt and I sat down, looked at our income and expenses, and created a plan to help us chip away at our debt.
Car Loans: Financing a vehicle can add to financial strain. To overcome this, consider buying a reliable used car instead of a brand-new one, negotiating the loan terms, or making extra payments to pay off the loan faster. Only recently have a purchased a new car, because with the COVID pandemic came a weird shift in car buying trends: used cars were more expensive than new cars (this was due to supply chain issues, resulting in longer wait times for new cars and less wait times to purchase used cars). To help finance this purchase, I put as much money as I could aside, and opted to own my car after the payments are done. This way, I can hopefully keep my car a few years without payments.
Medical Debt: Unexpected medical expenses can lead to significant debt. Young adults can negotiate payment plans with healthcare providers, review medical bills for errors, or explore options for financial assistance. Kurt experienced this first-hand, right after graduating from college. Not only did he tear his ACL twice (yes…. I said twice), but the co-payments for physical therapy added up. If you’re struggling to keep up with medical-related debt, It’s key to communicate and ask for payment plans to help you pay back what you owe.
Personal Loans: Personal loans may be taken out for various reasons, such as consolidating debt or covering unexpected expenses. To manage them effectively, prioritize repayment, avoid taking on additional debt, and explore options for refinancing at a lower interest rate.
Payday Loans: If you can help it, I would high advise against taking out a payday loan, as they often come with exorbitant interest rates, trapping borrowers in a cycle of debt. Instead of relying on payday loans, seek alternative sources of funding such as community assistance programs, or explore low-interest personal loan options.
Tax Debt: Unpaid taxes can result in penalties and interest charges. Young adults with any tax burdens should communicate with the IRS or relevant tax authorities, explore payment plans or settlement options, and seek professional assistance if needed. Last year, we were blindsided with taxes, and honestly it was a horrible feeling to have to dish out so much cash so quickly. One strategy: if you expect to pay a lot in taxes each year, consider setting up a schedule to pay estimated taxes in advance in quarterly installments. While it might cost extra, it can also help to work with a tax professional, especially when you have multiple streams of income, debt or other factors that might make filing or paying off debt a bit tricky
Mortgage Debt: Buying a home is a significant financial commitment. To manage a sizable mortgage, make timely payments, consider refinancing to lower interest rates, and explore government programs for assistance with down payments or loan modifications.
Business Loans: Starting a business may require taking on debt. Young entrepreneurs can mitigate risks by creating a solid business plan, seeking mentorship from experienced professionals, and exploring alternative funding options such as crowdfunding or small business grants. If possible, try using your own cash versus taking out a loan to start your business.
Gambling Debt: Problem gambling can lead to substantial financial losses. Seek support from organizations such as Gamblers Anonymous, limit access to gambling activities, and consult with a financial advisor to develop a plan for repaying debt and preventing future gambling-related problems.
Debt is a common challenge for many young adults, but it’s not insurmountable. By understanding the types of debt they may encounter and implementing proactive strategies for managing and overcoming it, young adults can pave the way toward financial stability and independence. Whether it’s student loans, credit card debt, or mortgages, there are always steps that can be taken to get over the hump and build a brighter financial future.