Tips for young adults to get themselves out of debt
There can be no doubt that the cost of living crisis is causing financial challenges for almost everyone across the UK. But it can be argued that it is actually hitting younger people. More and more young people are getting into debt, and facing a huge range of consequences because of it.
A recent report found that 66% of young people with student loans, for example, were accessing alternative credit routes to tackle basic living costs. This included using Buy Now Pay Later (BNPL) services, overdrafts and other sources.
This article takes a look at what getting into debt can do to your mental health, and then provides tips and strategies for getting out of that debt.
Being in debt can affect your mental health
Stress and anxiety are common reactions to being in debt. The constant worry about how to pay off debts, the fear of losing possessions, and the constant pressure to meet financial obligations can take a toll on an individual’s mental well-being. It can lead to feelings of hopelessness and helplessness, and can even lead to depression.
The pressure to meet financial obligations can also cause an individual to feel isolated and disconnected from their friends, family and society. This can lead to feelings of loneliness and social isolation which can affect mental health negatively.
Thankfully there are many things that you can do if you are a younger person who has found themselves in debt.
Address the problem at its source
If you have found yourself in debt, it is important to look at the problem at its source. It can be easy to assume that there is one way that your life needs to be lived. Often it is the case that young people get into debt because they have made assumptions about certain things being an inevitability.
A good example of this is when a younger person has moved out from their parents’ home into accommodation. But the property that they have chosen is simply unaffordable for them. In this case, re-evaluating what is possible can help make the decision to downsize or move into a flat share easier.
It might also be the case that you run your own business. Many young business owners make the mistake of trying to take on too much – especially with regard to running the business. You might be trying to do everything yourself to keep costs down, but ultimately this can be the reason your business is in debt.
“It’s true that some small business owners are unaware of the tax reliefs they could be claiming to reduce their tax bills,” says Carl Elsby, Director of Elsby & Co, an accountancy firm. “It never hurts to get a second opinion and a conversation costs nothing. If you seek out the right support early on and put in place the best structure, you’ll be in a better place in the long term”.
Leave the overdraft behind
Many young people make use of the overdraft feature on their bank accounts. Overdrafts are intended as a way to allow flexibility on an account – but increasing they are used by younger people simply as credit.
If you are regularly using your overdraft, you are effectively regularly spending more than you earn. Once again, this suggests that the problem isn’t the availability of funds, but a need to better manage your spending.
Using an overdraft can seem like a good way to deal with the problem of needing a little extra money – and this is fine if you have a 0% interest overdraft. But the vast majority of accounts now include fees, and these can be particularly punitive. This means that you’ll be paying a significant amount just for the privilege of going into your overdraft.
Transfer to a new card
If you have got yourself into a significant amount of credit card debt, part of the problem may be that your interest rates have now gone up. This means you are not only paying off the total of the debt, you are constantly held back by having to make interest payments on top of that total.
Here is where it can be smart (if slightly counter-intuitive) to open up a new credit. Many credit cards initially offer 0% interest on balance transfers and may have a lower interest rate, which can make it easier to pay off your debt.
It is all too easy for young people to find themselves in debt. And while it is harder to take the steps to get out of that debt, the good news is that it is possible, and there are many success stories of young people leaving their debt behind. Depending on your situation, it may be smart to talk to an independent financial adviser, as they will be able to provide with tailored advice and guidance.
Support with managing your money
- Use the tools on the Money Helper website for people who are living on a squeezed income. These include tools for tracking your spending, saving money and getting help while you’re working.
- If you’re a student, speak to student services or your tutor. They could help you apply for extra grants or bursaries. See our information on managing your money as a student.
- Find a foodbank near you.
- The Mental Health and Money Advice website has guides on claiming benefits when you have a mental health problem.
- Get help with accessing benefits and grants from Turn2Us.
- Speak to someone from Citizens Advice. You could get free advice on your rights around money, housing and legal problems.
- Read tips about managing money from the Money Saving Expert.
- See UK Government advice on managing household, energy and transport costs on the Help for Households