A debt situation is common in the UK with the growing appetite of people for credit. The situation can easily escalate to overwhelm your finances with the heavy interest rates and unmanageable installments. For young adults, the reason for the debt situation is expected as they make bad decisions because of inexperience.
Financial education is essential for young adults to start their professional life with the right mindset. You can avoid the severe consequences of your decision by learning from the experience of others. Therefore, you should use the available resources to learn about the cause of debt situations to live an independent life.
How to Manage a Debt Situation during the Initial Phase of Your Career
A debt situation is not the end of the road on your journey towards financial freedom. You can manage the repay the debts before the repayment period ends with the right strategy. Start with some significant changes in your lifestyle to avoid further debts in your credit history.
Now, find ways to increase savings and make payments more than required for your loan. You can start a side hustle or small business to increase income for the debt repayment. Contact a direct lender to get a start up business loan with bad credit.
Furthermore, avoid the use of credit cards as it causes temptations to drive financial decisions. You can use the good old-fashioned cash to buy essential items from the stores. In the end, try to get a debt consolidation loan to repay the high-interest debts to reduce the stress on your budget.
Common Causes of Debt Situation
You must work on the causes of debt situations to make changes in your lifestyle. Even if you repay the debts without a default, you may end up in the same situation because of unaddressed reasons. Here are the common causes of a debt situation in young adults to help you avoid them altogether.
The absence of a budget means you don�t have any plan for your income. You are not aware of the expenses, and the purchase is mindless. Without a budget, you are more prone to make decisions on impulse than a clear goal.
Therefore, start with creating a budget for your income and essential expenses. Take help from the account statement of the past few months to learn about your spending habits. Now, reduce the unnecessary costs from your budget to increase the savings.
Make sure to have the right tools to track your spending for more control over the budget. Install an application on your Smartphone with the option to link your bank account to keep records of your spending. Also, enable automated payments for bills and debt repayment to avoid spending the money on some needless expense.
No Emergency Fund
We take debts during a financial emergency to manage the costs. However, it gets easier to sail through the tough times with an emergency fund instead of a loan. You don�t have to pay interest or manage the installments.
However, a huge population lives on a paycheque-to-paycheque lifestyle that leaves no space for savings. They rely on credit cards and loans for the sudden requirement of funds. And a bigger emergency will result in serious debt problems with no other available solution.
You can build an emergency fund with small savings over a few months. You should have enough money in the fund to manage your expenses for three to six months without an income. Use a separate account for the emergency fund to avoid spending the money on unnecessary purchases.
A student loan is a very popular financial service for people to pay for their college. It takes care of the fee and living expenses while you focus on your studies. However, repayment is not easy during the initial stage of your career.
The lender may provide a moratoria period to find a job and get settled in the new environment. The repayment will start once the moratoria period ends, and you are responsible for the heavy installments. The situation gets tough when you don�t find a job or the package is not enough to manage the installments.
There are options available such as refinancing the loan or extending the moratoria period. Use the loan amount during the college years for the essential expenses. A side hustles or part-time job can help with the loan repayment after the moratoria period.
Excessive Use of Credit Cards
Credit cards are known as debt traps in the financial world for a reason. They increase your spending ability to cause unnecessary purchases based on impulse. Thus, creating unnecessary stress on your finances with their heavy interest from the next months.
You should avoid the use of credit cards for shopping or cash withdrawals. Cash or debit cards are ideal if you want to stick to your list while visiting a market. You can also use prepaid cards to avoid spending more than a set amount.
Remember, you should not discontinue the credit card service to avoid its use. It will reduce the credit limit of your profile to create problems with future loan applications. Also, make small purchases from your cards now and then to maintain a very good credit score.
More Spending Than Income
One should learn to live within the means to secure their finances from the constant struggle. The difference between your income and spending is either savings or debt. You need to make sure the answer is always savings for your case.
You cannot make major changes to your lifestyle overnight. It is a process that requires consistent efforts for a few weeks or months to overcome. Therefore, reduce your spending with a plan to avoid losing motivation amid the budget stress.
To sum up, you live without a debt situation with the learning from the mistakes of others. Accept your shortcomings and open yourself to changes if you want to get rid of the debt situation. You will experience positive changes once good financial habits start to form.