A whopping 80% of Americans are in debt, and many are working as hard as they can to pay off their loans as quickly as possible. While trying to become debt-free and pay off your loans early is a popular sentiment in the personal finance community, it’s an incredibly dumb piece of financial advice. Here's why.
Chances are, you’re in debt. And you aren’t alone. 80% of Americans have debt and are in the same boat as you. Many of these people also fear that they will be in debt for the rest of their lives. But I’m going to let you in on a secret about debt.
There are many different forms of debt, and it seems like millennials have made it their mission to practice using each type. Some debt is great and can help you build wealth. Other debt just ends up costing you more than you should have paid. Below, we break down the different types of debt, and how to use them to make money and avoid losing it.
Millennials love debt. We have a lot of it, and we can’t stop acquiring more. Our largest source of debt as a generation is credit card debt, which few people realize. On average, each of us has $33k in student loan debt. We may have an auto loan, and we’ve probably just purchased or are considering purchasing our first home and taking on a mortgage. Even though we turn to debt to reach all of our life goals, few of us actually know how much debt we have, and even fewer of us know how much of our income goes toward paying for our debts. But it's important to know these things because having too much debt is risky and expensive. If used properly, debt can help you build wealth, but if used improperly it can devastate your finances. So how can you tell if you have too much debt?
As job losses continue, millennials are faced with another problem, the staggering $497.6 BILLION they carry in student loan debt. High job losses and student loan debt are the two ingredients needed to create a millennial financial disaster. Luckily, the government stepped in and decreased federal student loan interest to 0% and suspended loan payments through September 2020. Here is why you should keep paying your student loans off during the suspension if you can.
A bad or mediocre credit score can cost you an excess of $100K over your lifetime. That is A LOT of your hard-earned cash. For many of you, this exceeds your annual salary. That means you would need to work several years just to pay the higher payments caused by your poor credit score.
One of the biggest misconceptions I see around the current views of millennials’ finances is what assets are good to acquire using debt. We are constantly bombarded with the notion that taking out debt to get a college degree will leave us forever paying off our student loans, and therefore we will never be able to get ahead. But no worries, it is totally fine to take out that $25,000 loan to buy that new car you really want. These messages are completely wrong, and here’s why.