Ways To Be Debt Free That Every Millennial Should Know
Young people are often in debt very early these days, as they have too many financial commitments and very little savings. As a result, some millennials would even find themselves dealing with a rocky financial stability straight out of college.
What’s more, the cost of living can sometimes exceed the wages that young people earn and it’s hard to keep afloat. I mean, how do you survive with only RM2,500 per month? Many financial experts emphasize that the first step in being financially stable and debt free is to not get into debt in the first place.
So here are some ways you can work towards financial freedom before it’s too late (or you know, go bankrupt):
1. Delayed gratification
Delayed gratification describes the process that a person goes through when he or she resists the temptation to reward themselves immediately. For example, you just landed a new job and now you’re thinking of getting a new car although you already own an entry level car that still runs well. You can afford a nice new midsize car at this very moment, however, if you purchase it, you’ll be tied to a loan that will have you spend more money than necessary.
Delayed gratification is to continue using your current car even though you can (barely) afford a better car. This is a trait that successful people have which allows them to control their spending on top of many other things.
2. Create a bare-bones budget
If you really want to stay out of debt, you’ll need to cut your expenses as much as you can. One way you can use is to create a bare-bones budget. With this strategy, you’ll cut your expenses as low as they can go and live on as little as possible for as long as you can, which will ensure you to have a healthy bank account.
A bare-bones budget will look different for everyone, but it should devoid any “extras” like going out to eat at fancy places, extra cable television packages, or unnecessary spending. While you’re living on a strict budget, you should be able to spend considerably more on necessities, and avoid using a credit card.
3. Pick up a side hustle
Earning more money can help to ease the burden of costly living. Nearly everyone has a talent or skill they can monetize, whether it’s babysitting, mowing yards, joining an e-hailing app, or becoming a virtual assistant.
With sites like Grab and Goget, nearly anyone can find some way to earn extra money on the side. The key is taking any extra money you earn and using it to pay your commitments so you don’t spend it elsewhere.
4. Try the debt snowball method
If you’re now capable of paying more than the minimum monthly payments on your credit cards and other debts, consider using the debt snowball method to speed up the process while building momentum.
As a first step, you’ll want to list all of the debts you owe from smallest to largest. Throw all of your excess funds at the smallest balance, while making the minimum payments on all your larger loans. Once the smallest balance is paid off, start putting that extra money toward the next smallest debt until you pay that one off, and so on.
Over time, your small balances should disappear one by one, freeing up more ringgits to throw at your larger debts and loans. This “snowball effect” allows you to pay down smaller balances first — logging a few “wins” for the psychological effect — while letting you save the largest loans for last. Ultimately, the goal is snowballing all of your extra cash toward your debts until they’re demolished — and you’re finally debt-free.
5. Throw any excess cash at your debt
If you’re lucky, you might even find extra money falling onto your lap magically. So when this happens, quickly take this cash and use it to pay off your debts.
Some good examples would be a tax refund, selling a used item, an inheritance, winning a lottery, a company performance bonus etc. The more cash you can put towards your debt, the faster it will disappear.
6. Negotiate with financial institutions
Another way to get rid of debt is to lower your credit card’s interest rates. Interest rates are legally binding contracts, however most banks can offer you a lower interest rate depending on how you go about. Sometimes they’ll even waive your annual fee or late payment penalty.
Truly, you just can’t escape from having financial problems! To know more, make your way to Ais Kacang and listen to Nicoco and Danielle as they talk about handling finances.