Today’s younger generation, especially second and third generation millennials and GenZ lead a lifestyle with too much ‘Swag’. For them, patience as a word is probably unheard of. Its more about leading a fast life and being too involved in instant gratification. It has been observed that, today’s young generation chooses to live in the present rather than think about securing their future financially.
Needless to say, this swag lifestyle often sees this generation falling into debt traps. Yes. The urge to lead a better life or having high expectation from life and also peer pressure, often leads to millennials and GenZ going out of their comfort zone to spend money. Huge credit card bills, frequent interest-ridden debts, high EMIs and low or no cash deposits have almost become the norm for this generation. Well, in that case, does it actually sound ‘SWAG-GY’? Not really.
However, is there a solution to this? Well, the answer is definitely yes! While the solution might be similar to that of a bitter medicine, but its long-term consequences are eventually sweeter. So, how does this solution work?
Here’s a step-by-step guide to the same.
What swipe offs to reduce? Left or right? Well, it is the credit card swipes that we are talking about. As glamourous as it may sound, but too much use of plastic money can have a negative impact on your long-term financial goals. Credit cards are too good to resist when it comes to having no cash with you. However, what people forget is that, the amount needs to be paid off after 45 days, failing which exorbitant interest rates are levied (often 36% annually). Purchases made through credit cards are not for free. In fact, it adds on to your debts gradually.
Borrowing more when already debt ridden, won’t help, hence step one is always stop spending through credit cards.
Speaking of practicality, let us assume you have a credit with credit limit of 1 lakh rupees and the interest will be charged until you pay the entire amount post the due date. In addition to that you will have to arrange extra money to repay the excess bill along with your fixed expenses.
According to Shweta Jain, Certified Financial Planner and Founder, Investography, “Spending on credit card is easy, way too easy. So much so, that we often end up spending money on things we don’t need. So, one way to cut down on debt is to stop using credit cards. You would be surprised at how much your spending has come down just by not using a credit card. Also, dont look at the minimum amount due on the card, but ensure you pay full amount due. If you cannot pay full amount, dont spend.”
You love to catch up with the latest blockbuster at the multiplex followed by a lavish dinner with your significant other every week, right? Do you realise that this habit actually burns a hole in your pocket? Well, that doesn’t mean you have to deprive yourself of entertainment or end up starving. But, cutting down on expensive theatres and eating out often can help you save more, even if in smaller amounts. Everyone has one of those expenses which are little too lavish.
But how does cutting down on extra expenses help? Jain explains, “for example, you may not have enough money for the year end trip if you have shopped impulsively through the year. You realise that you spent on things you didnt need and now dont have money to spend on something that means a lot to you.”
Cutting down on these unnecessary expenses will not only help save some extra buck but also bring in a healthy financial habit. These savings can help you reduce your debt burden in addition to that reduce your debt by unnecessary spending.
Try to clear out heavy duty debts as early as possible. These typically include credit card debts or debts related to stuff like personal loans. High interest debts are the worst debts, clearing them should be the first priority. List down all the loans you have and target to clear the heavy interest ridden debts. Just as you receive your monthly salary, always remember to clear out your debts first, keep aside at least 20% of your income and then spend the rest. This is how, you will be able to keep yourself out of debt.
Big Billion Sale, Summer Sale or even the Great Indian Shopping Dhamaka – such offers can be too tempting, especially with online shopping becoming the norm these days. However, do not forget to weigh the pros and cons of such temptations. They do nothing but burn a hole in your pocket. In fact, purchasing anything under impulse can have a negative impact on your financial goals. An Apple Mac Book can be really great to possess; however, does buying it on EMI make sense? Definitely no.
Being debt-free might sound a little difficult. But its not impossible. A little bit of careful planning can help you ride through debts.