Mixed Out: How millennials can pay off debt and reduce their stress

1. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
https://knowledge-place.wealthmeethealth.com/individual/be-smart/article/maxed-out-how-millennials-can-pay-off-debt-and-reduce-their-stress/ 1
When it comes to millennials getting out of debt, it’s not as simple as just
cutting back on avocado toast.
The total average debt for millennials is estimated at $29,000, but if you have
student loans, that tally is closer to $40,000, according to a Gallup poll. The
Global Financial Literacy Excellence Center of George Washington University
(GFLEC) also found 66% of millennials have at least one source of long-term
debt, such as student loans, car loans, or a mortgage, and 30% have more than
one source. As far as short-term debt goes, GFLEC learned credit card debt is
the primary source, with fewer than half of millennials paying off their card
balances in full each month.
The net effect of all of this debt? Gallup found millennials have less purchasing
power than previous generations (with the exception of Gen X, who tend to
Be Smart / Longevity / Savings
MAXED OUT: HOW MILLENNIALS CAN PAY
OFF DEBT AND REDUCE THEIR STRESS
Why It Matters:
The 64% of millennials with consumer debt have an average balance
between $29,000 and $40,000.
Northwestern University researchers found the majority of millennials feel
stressed about repaying their debt.
Most Americans grossly underestimate how much student loan and credit
card debt they have, according to the Federal Reserve Bank of New York.
WRITTEN BY: MELISSA KOMADINA | TRANSAMERICA
AUG. 31, 2017
5 MIN READ

2. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
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have the highest total debt balances) but more stress and potentially worse
health because of it.
The stress of being in debt
Fifty-four percent of millennials who are 30 years or older worry about repaying
debt, and those percentages increase if you are a woman, a non-Asian minority,
or you have some education but not a college degree, according to the GFLEC
Gen Y Personal Finances report. As you might expect, people who have lower
incomes also tend to be more concerned about repaying debt, although GFLEC
found even 34% of millennials who make $75,000 or more annually still worry
about paying off their student loans.
Being in debt can take a toll on not only your health but also your general sense
of well-being and self-esteem. “The High Price of Debt,” a Northwestern
University study of 8, 400 young adults, revealed high levels of debt relative to
assets resulted in poorer health – specifically higher perceived stress and
depression, lower self-reported health, and measurably higher diastolic blood
pressure.
Make a plan to climb out of debt
When you’re saddled with debt, getting out of the red and into the black may
feel completely unattainable. Having a financial plan for paying down debt and
saving for emergencies and retirement, however, can give you a sense of
control over your situation and thus may be well worth your time.
But where do you even begin?
First, set up a budget if you don’t have one already and figure out how much
money you have to pay toward your debts. The 50/20/30 budget can be
helpful here in determining how you should be splitting your income.
50%: Essentials, i.e., your “overhead” costs like housing, utilities,
transportation, food, etc.
20%: Pay-yourself-first categories like emergency savings, retirement
accounts, and debt repayments. Set aside emergency savings and automate
your retirement account contributions first, then use the rest for paying off
debt.
30%: Lifestyle expenses that aren’t essentials, such as avocado toast,
entertainment, travel, etc. Minimizing these expenses will give you more
money to spend on your “20%” categories.

3. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
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Second, and perhaps the hardest step: figure out how much debt you actually
have, from student and car loans, to credit cards and other loans. Also note the
interest rates (APR) and minimum payments due for each account. A Federal
Reserve Bank of New York study found Americans underestimate their student
loan and credit card debt by 25% and 37%, respectively. Not knowing your true
debt amount will make it harder to feel like your financial plan will be effective.
On the other hand, seeing everything laid out accurately will give you
confidence in your plan.
Now that you have your debts and interest rates in front of you, decide what
your strategy will be to pay them off. There are two ways you could think about
this: debt stacking or the snowball method.
Debt stacking
With the traditional debt stacking approach, you pay the minimums on all of
your accounts and then use any remaining money as an additional payment for
the account that has the highest interest rate. Once you’ve paid off that
account, you then focus on the account with the next highest interest rate, and
so forth.
The pros of debt stacking is that you’ll save money on interest in the long run,
but it could be a while until you pay off all of your accounts.
Snowball method
The debt snowball method takes the opposite approach in that you pay the
minimums on all accounts but put any extra money toward the account with
the lowest balance.
You might pay more in interest, but there’s also a psychological benefit from
completely paying off a debt that could help motivate you to stay on track with
your overall financial plan.
You can also play around with the amounts you’re paying toward each account.
I Will Teach You to Be Rich author Ramit Sethi’s free debt calculator will show
how your payment amounts impact the time you’ll need to pay off your debt
and the additional interest you’ll have to pay.
Third, set up autopay for all of your financial accounts for at least the minimum
amount due. Not only will doing this free up the mental energy of not having to
remember to pay an account, but you’ll save money on late fees and potential
penalty interest rate increases. Whichever debt payoff method you choose, set
a calendar reminder to make the additional payment on your target account, or
schedule it in advance.

4. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
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Fourth, consider refinancing your student loans and/or negotiating for lower
interest rates with your credit card companies. Sethi even has a phone script
for calling your credit card company. Considering it could save you thousands
of dollars in the long run, it never hurts to ask.
Finally, take care of yourself. Dealing with financial woes is stressful, but eating
well, exercising, and spending time with friends and family are important ways
to mitigate stress and the toll it can take on both your physical and mental
health.
Things to Consider:
Get an accurate handle on all of your debt.
Talk with a trusted financial professional about your debt and your plan to
pay it off while setting aside savings for retirement and emergencies.
Check out personal finance tools like Mint that consolidate your accounts
into one dashboard where you can see all balances at once.
photo: TWENTY20.COM/@UsmanM35
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5. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
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6. 5/7/2018 Maxed Out: How Millennials Can Pay Off Debt and Reduce Their Stress | Transamerica Knowledge Place
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