Millennials and Loans – How to Sort out Your Finances

Millennials have a unique relationship with money and manage their finances differently than their parents or grandparents. Such differences, as well as biases about millennials, have led to a bad financial rap for Generation Y. Unfortunately, they are also coping with bigger financial burdens than previous generations, including soaring home prices and high student loans. With such added pressure, it’s no wonder that millennials between the ages of 25 and 34 have an average of $42,000 in loans each.

Yet, there is a way. Millennials have an asset that the older generation don't – time. You only have to make the most out of your time by changing some spending habits to improve your financial situation through more planning and more saving.

Make the 50-30-20 rule your goal

The 50-30-20 rule means that you should put 50% of your paycheck toward needs (groceries, bills, transport, housing) and 30% toward "wishes" (things that you enjoy, like picnics, movies, travel, going out with your friends). The last 20% will go toward the "future you", meaning investments, savings, and debt payments above minimums.

Following this rule isn’t always possible. Unexpected things happen, and life surely isn’t cheap. So if your needs currently exceed 50% of your paycheck, think about the steps you might want to take or costs you may be able to reduce to ensure a more attainable plan for the future.

Tracking your credit score

First off, you can and should regularly check your credit score for free online. When you monitor your credit score this way, you’re doing what’s called a “soft” check – which doesn’t affect your score, unlike a “hard” check (when a potential lender reviews your score for a loan, credit card or mortgage). 

If you don’t have an “excellent” (750+) or “good” (700-749) credit score and still have to take a loan, there are a few paths available. For instance, you can look into online bad credit loans that only require a bank statement and your personal details. Or get a secured credit card, as this card helps you build credit like a regular credit card – but it won’t let you overspend. 

Reducing your debt

It is better to clear your debt sooner than later. Student loans are usually designed to be repaid within 10 years. That’s no small number of years to let that loan hang around. Since there is no pre-payment penalty with student debts, you can go above the minimum needed payments and complete that part of your life sooner than later. Run some numbers and explore how quickly you’ll be rid of the loan if you add another $25, $50, or $75 to your monthly payments.

However, concentrate on paying off your credit cards first, since that interest tends to have a higher yield. You can also focus on any loan debt yielding over 7% or 8%.

Talk about income with your friends

How? With wine! But really! You might discover that bringing up the subject of employment and income out of the blue can be a bit daunting. People tend to close up about such subjects. That's where the wine comes in. Bring a bottle and discuss things like how to ask for a raise, how they landed their jobs, how much you can make, and how much everyone made when they started out.

Coordinating a career-chat with your friends may even have additional benefits besides this, as who better can comfort you when things are going south. These conversations are important for gaining a better sense of your value as a professional – and understanding, for instance, how much you might want to ask for when you talk to your employer about a promotion or a raise.

Get your body and finance in shape

Exercising has many benefits. You will feel better, stronger, faster, and calmer – both in mind and body. This will easily lead to better productivity and attention at work, ultimately leading to higher pay. Hence, taking up jogging may help amp up your financial game. Also, all the habits and discipline that comes with it will make you manage and save your money better. 

Taking care of your loans and finances is not that hard. You just need a proactive stance, where you understand how you’re spending your money and how can you get more. Ultimately, it is up to you and your discipline to make the most of your time and get your finances in shape.

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