5 Money Tips for Millennials To Pay Down Credit Card Debt
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Are you a millennial weighed down by credit card debt? Don’t worry; you’re not alone. Outstanding credit card debt in Canada has skyrocketed in this generation of young professionals, but it doesn’t have to mess with your life and finances forever. With the right strategies, you can repay your credit cards and build a good credit history. In this article, learn all about the different ways to start tackling your debts – from budgeting tips to smart payment methods.
- Despite the millennial generation earning higher wages than their parents, studies show that millennial debt is at an all-time high.
- The cost of higher education, homeownership, and the millennial wealth gap are factors that make millennials more susceptible to credit card debt.
- There are best practices for paying off debt; learning them is the first step toward financial freedom.
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Compared to their parents, Millennials typically have higher earnings but larger debts.
Despite the millennial generation earning higher wages than their parents, data show that millennial debt is at an all-time high; this is due to several factors. Many millennial workers face higher college costs, changing job markets, and prohibitive living costs. All of these factors have resulted in millennial debt levels rising as more and more strive to obtain competitive salaries and qualifications despite the economic climate.
In fact, Statistics Canada reports that the debt-to-after-tax income ratio of millennials was 216% in 2016, while Gen-Xers had a ratio of 125% in 1999. This creates a financial challenge for millennials as they try to make greater savings while also minimizing their debts.
The Factors Contributing to Millennial Debt in Canada
1. The Increasing Cost of Higher Education
With the cost of higher education steadily rising in Canada, millennials struggle to gain their degrees without acquiring personal debt. As millennial debt reaches an all time high, trying to decipher how to pay for schooling while attempting to live comfortably is challenging. Financial aid and student loans are options, but they come with a hefty price long-term—mainly in the form of expensive interest rates on top of already high tuition fees. According to research by the Financial Consumer Agency of Canada, millennials with a college or university degree carried more than 30% of total Canadian household debt in 2017.
2. The Increasing Cost of Home Ownership
One of the primary causes is increasing costs of homeownership, which can be a huge expense compared to renting. Millennial homebuyers are finding it increasingly more difficult to save enough money for a down payment since wages are remaining relatively stagnant while house prices continue to increase, causing millennials to take out higher loans than expected. This phenomenon has presented millennials with an increasing financial burden.
3. The Millennial Wealth Gap
The millennial wealth gap has been a growing concern in Canada, creating an uneven playing field and leaving many millennials struggling under the burden of debt. According to Stats Canada, the top 10% of millennials represent 55% of the net worth of the entire generation.This creates a ripple effect, where the millennial generation is unable to amass the necessary capital to finance proper housing or dominate in certain employment markets, leading them to remain bogged down by student loans and credit card debts. It’s clear that innovative policy solutions will be required if we are going to successfully combat millennial debt in Canada.
4. Millennial Credit Card Debt
Millennial credit card debt is rising, with research showing that millennials are some of the most indebted generations in recent memory. As wages stagnate and monthly expenses increase, many millennial adults find themselves unable to keep up with their credit card payments. Research also shows that millennial debt is disproportionately higher than older generations when you look at other types of debt, such as student loans and mortgages. It’s estimated that Canadian credit card debt had an average balance of about $4,312 in 2019, but this number weighs heaviest on the millennial generation and can leave millennial adults in a precarious financial situation.
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5 Money Tips for Millennials To Pay Down Credit Card Debt
Here are 5 millennial-friendly tips on how to pay down credit card debt. These key points are also applicable to other types of debt and achieving financial freedom in general!
First, create a budget.
The first step to paying down credit card debt is to figure out how much money you have coming in and going out each month. This will help you to create a budget that you can stick to and will allow you to see where you can cut back to make more room in your budget for paying down your debt. A good way to start creating a budget is to use the 50/30/20 method.
The 50/30/20 method can be an effective way for anyone to budget, especially when trying to pay down credit card debt. It involves breaking your monthly income into 50%, 30% and 20% categories.
- 50% of your money should go towards essential monthly costs like rent, bills and groceries.
- The following 30% can go towards discretionary spending such as leisure activities, dining out and holidays.
- Finally, the remaining 20% should then be put towards paying down that pesky credit card debt and building up a savings account.
When using this method, you’ll also want to track both incoming and outgoing money – this will allow you to see where (and how) you’re spending, so that you can make informed decisions on how best to stay within your budget and reach your financial goals!
Focus on paying off one debt at a time.
Paying off debt can seem like a daunting task and it can take a while to get things paid off. That’s why there are two common approaches to paying down debt: debt avalanche and debt snowball.
- With the debt avalanche method, you pay off the debt with the highest interest rate first, then move your way down the list, while paying the minimum payment on all other debts. This is considered to be the best approach as paying off high-interest debts first will help you save money in the long run.
- Alternatively, with the debt snowball method, you focus on paying off one debt at a time in order of smallest balance to largest balance. This approach can create success quickly and provide motivation for paying back all of your debts since progress can be seen much faster.
Whichever approach you choose, each one allows for paying off your debts gradually over time and most importantly, encourages you to focus on one debt at a time.
Make more than the minimum payments on your debts.
It is important to make more than the minimum payment on your credit cards each month in order to pay down your debt faster. If you only make the minimum payment, you will end up paying more in interest over time and it will take longer to pay off your debt.
Keeping up with larger payments each month can also have a positive effect on your credit score since paying debts off quickly is seen as positive by creditors. Reducing debt is an important step towards financial stability, so don’t hesitate to put additional funds towards paying off your credit card balance every month.
Always ensure that you’re making your payments on time.
Making timely payments is one of the most important things you can do to set yourself up for success financially. Paying your bills on time each month helps maintain a healthy credit score, keeps debt manageable, and ensures that any fines or additional costs are avoided. One of the best ways to stay on top of paying off debt is by automating payments from your bank account through the creditor’s website. This removes any chance of forgetting a payment and will help you keep track of what debts have been paid and which ones still need paying off. By taking control of your payments and working towards paying off debt in a timely fashion you’ll be sure to reap the rewards in both peace of mind and financial stability.
Consider utilizing consolidation options
Consolidation options are a great way to pay off debt more efficiently and quickly. This strategy combines all of the payments that you owe into one single payment. Consolidation can also lower your interest rate if you qualify for a consolidation loan, meaning you’ll be paying less in the long run. It’s important to research your consolidation options carefully since some companies have hidden fees or may offer terms that aren’t as beneficial as they seem. Ideally, paying off debt should become easier with consolidation, so it’s important to find the best option for you.
What percentage of millennials are in credit card debt?
According to a study conducted by Licensed Insolvency Trustees Hoyes, Michalos & Associates Inc. in Ontario, 87% of millennials owed credit card debt in 2021.
What age group has the highest credit card debt?
Millennials have the highest credit card debt when compared to Gen-Xers and Baby boomers.
What is the trick to paying off credit cards as a millennial?
Some good tips to pay off credit card debt as a millennial include:
- Establishing a budget
- Focusing on one debt at a time (using the snowball or avalanche methods)
- Pay more than the minimum payment on your bills
- Pay your bills on time
- Look into consolidating your debts to mitigate the cost of interest rates
It can be challenging to free yourself from credit card debt as a millennial Canadian, but you don’t have to settle for continually being weighed down by it. With the correct strategies and determination, it is possible to build a strong financial future. Take control of your finances today, and you will be sure to thank yourself. Don’t let your past (or present) financial difficulties stop you from succeeding in the future. You’ve got this!
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