Stay out of debt in your 20s
More rates and news from
Yahoo Finance and Realty Times
Once you graduate college and find a career job, you probably will not be able to start investing n a 401(k) and buy a house. The main priority while you’re in your 20s is to try and stay out of major debt.
Jonathan Clements’ article, “Keeping Your Financial Footing at 22 -- So You Can Buy That House at 32,” located in the August 2, 2006 edition of The Wall Street Journal, focuses on the importance of struggling to remain out of debt while you gain income towards eventually buying your first home.
“I am not saying all debt is bad, and I am not arguing that folks in their 20s, if they have the money, shouldn't purchase homes and fund 401(k)s.”
If you are able to pay all your bills on time, while taking out an auto loan, you should be on the right track. Debt piles up quickly, especially once student loans hit.
“According to the College Board, an association of schools, colleges and universities, 73% of graduates from four-year nonprofit private colleges had student loans outstanding, with $19,400 typically owed.”
The problem with paying back students loans is that there is typically a six month grace period awarded to the borrower from the graduation date.
As a result, the first few all important months after graduation, when young adults are struggling to find a way to pay bills on their own, do not include student loan payments.
This is thought of as a good thing, but many recently graduated students live month-to-month and then six months later, bam!, another bill. And student loan bills are usually a couple hundred dollars a month.
“Once kids get into the work force, this debt can cause a heap of financial stress. New York's Alliance Bernstein Investments recently surveyed college graduates between ages 21 and 35. Among those who graduated with debt, 42% said they were now living paycheck to paycheck, versus 24% of those who graduated debt-free.”
Debt goes beyond student loans. Many graduates have credit card balances of $3,000 or more. As they struggle to survive on low paychecks, credit card bills are often the first sacrifice.
“With any luck, your post-college financial struggles will ease as you approach age 30 and start getting some decent salary increases.”
“The typical first-time home buyer is age 32, according to the National Association of Realtors, based in Chicago. Similarly, surveys by the Investment Company Institute in Washington suggest people typically start investing in mutual funds in their late 20s or early 30s, with their first investments often made through 401(k) or similar employer-sponsored retirement plans.”
You can make it as long as you stay out of debt. Student loans, auto loans and credit card payments will most likely give you the most trouble because they are the most expensive.
A tip with credit cards is to try and use a bank debit card. This way, the balance is automatically deducted from your balance. Not having the funds in your account to cover the purchase may be an indication to not to buy it.
