Yahoo Finance Gen Z: 9 Things You Must Do Now If You’re in Debt
Gen Z, particularly those in the 22 to 24 age range, are carrying higher levels of debt than their millennial counterparts did around the same age, according to a new TransUnion study. This generation has been hit hard by both the after effects of the pandemic and high inflation.
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Even though economics may be slanted against them, carrying debt at such a young age can make it hard to financially prepare for the future.
Edward Nisanov, an enrolled agent, CEO and owner of Nisanov Tax Group explains nine steps that Gen Z can take now to improve their financial situation immediately.
Limit Digital Payments and One-Click Buying
Nisanov has noticed that Gen Z has trouble managing their money, particularly in this era of digital payments.
“You don’t even need credit cards anymore. It’s just Apple Pay. It’s just so easy. You take your phone, you tap it, you walk out of the store and you buy whatever you need,” he said
Even Amazon has one-click buying. “All you have to do is tap one button. You don’t even have to leave your house. So they’re making it easier for you because it’s in their best interest, but it’s not necessarily in your best interest,” Nisanov said.
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Spend Consciously
Nisanov said that a lot of people buy things that they don’t really need because it’s pushed to them on different channels like TikTok and Instagram — particularly Gen Z, who are more fluent in social media.
He also frequently sees young people in Starbucks buying expensive coffee drinks. “That all adds up. I sometimes wonder where they’re getting this money from and the answer is, it’s all credit and they’re accumulating debt,” he said.
So what should Gen Z do instead? “First off, just cut that spending habit. There’s no reason to buy a $6, $7 or $8 cup of coffee in the morning from Starbucks. You can make the same thing at home.”
Stop Buying What You Don’t Need
All of these easy purchases can just lead to an accumulation of stuff as well as debt. “So stop buying the unnecessary stuff,” said Nisanov. “If you’re making a purchase, take a second to decide whether it really makes sense and if you need it and don’t make impulse buys spies, maybe don’t buy it right away. Wait three hours, maybe your decision will be different.”
Use Credit Cards to Your Advantage
Credit cards are tools that can be used for good or to your own detriment. Nisanov finds that, “People don’t use credit cards to their advantage.” Not only are people accumulating debt, they’re carrying balances with 20% to 30% interest rates.
“You’re never really going to pay that debt down. It’s a snowball effect. So what you have to start doing is tackling your credit cards.”
He said there are different schools of thought of how to do it, such as tackling the smaller balances first, or paying off several cards at the same rate. But the approach that he finds useful for Gen Z is to play what he calls “the credit card arbitrage game.”
In this approach, he said, you look for a credit card that will give you a 0% promotional offer if you open up a new credit card.
“So, if you have a balance of $10,000 on credit card A that you’re paying 22.9% in interest, why not open up that 0% credit card? It’s good for 12 to 18 months. Transfer that balance from credit card A to new credit card B. With a 0% interest rate, you’ll have virtually a 0% loan, other than a 3% transfer fee.”
This will enable you to pay more down on your principal when you make payments.
If you don’t have many credit cards, this approach might even decrease your credit utilization rate, one of the factors that goes into determining your credit score. But even if it doesn’t, he said, in the short term, a slight dip in credit will be easily restored once you pay off your balance anyway.
Become Investing Savvy
Nisanov said a lot of Gen Z also aren’t investing, or even aware of different types of investing, which is a fairly passive way to earn money.
Not only are Gen Z not investing in the stock market, but not enough are investing for retirement. “People don’t utilize their employer’s 401(k) plan. Most companies will offer some kind of match. So I tell clients to at least contribute to get the employer match because it’s just free money and you can grow that significantly.”
Don’t Blow Your Paychecks
For many Gen Z, they may be in a first or second job, where the excitement of getting a paycheck overrides long-term planning, Nisanov said not blowing your paychecks is important.
“Maybe it’s a first job out of college, and they’re excited about that first paycheck going from student loan debt to having money coming in. This may be life-changing initially, and they’re so eager to spend it because they haven’t had it. It’s like a windfall, but now we have to kind of slow down and manage it.”
Improve Financial Literacy
Young people are in the ideal spot to improve and increase their financial literacy, because you have time on your side to earn money and build wealth. “Parents should teach it, because schools don’t,” Nisanov said.
However, many parents don’t have good financial literacy, either, so the responsibility is on Gen Z to gain it. Fortunately there is no shortage of content available on all platforms.
Seek a Family Loan
In scenarios where there are few ways to get out of high-interest debt in an easy manner, Nisanov said, “Don’t feel embarrassed to turn to your family and ask them for a short-term loan to pay that down.”
Many Gen Z may have grandparents willing to help, Nisanov said, and many will do so with either no interest or vastly lower interest than a credit card or bank loan.
Reap the Magic or Curse of Compounding
Because they’re young, Gen Z can really make compounding interest work for them, Nisanov said. “It can either compound against you or it can compound for you. So if you have credit card debt, it just continues to compound against you. And if you start investing at a young age, it’ll compound in your favor and you want to make sure you’re on the right side of that equation.”
The worst things for Gen Z to do is to act as though the future won’t arrive and get into bad financial habits. Paying down debt now means you’ll have more to save and more time in which to do so.
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This article originally appeared on GOBankingRates.com: Gen Z: 9 Things You Must Do Now If You’re in Debt
