“How to manage debt” is one of the first financial crash-courses you’ll need in your 20s, especially if you took out student loans to fund your higher education. Deferment options make it easy to ignore your student debt while simultaneously racking up more and more each year. Eventually you graduate and the bills start coming. The total monthly bill can be an unexpected and unwelcome surprise, especially when trying to juggle other bills with a typical entry-level paycheck.
But even if you decide to pay your way through college or to enter the workforce straight out of high school, debt can crop up in other areas of your life, such as with a car payment, mortgage payment, medical bills, credit card bills, and emergency “life happens” bank loans.
You can tackle your finances with the best of intentions and still encounter debt.
You might be wondering why debt is such a big deal if virtually everyone has it in some form or another. How you handle your debt in the present can impact your ability to borrow money in the future. That’s because the amount of debt you owe and your ability to make payments on time factor into your credit score. Your credit score is the first thing all lenders look at when you inquire about borrowing money. Even if you make a million dollars a year, a poor credit score would make you a risky borrower and your loan application could be denied.
It takes time for a credit score to improve, so understanding how to have “healthy” debt is imperative before you even sign off on a loan.
For example, it may be smart to ignore deferment options and begin making payments immediately to accrue less interest. Familiarize yourself with concepts like the “debt snowball” vs. “debt avalanche” and understand the refinancing options at your disposal if you simply cannot pay back your debts.
Take a deep breath! Debt isn’t a life sentence. You can work hard to lower it or get rid of it altogether, and this section will guide you through everything you need to know to develop a debt-busting plan with confidence.