How to Rein in Millennial Debt for an Affordable LifeOct 14, 2018
For the millennial generation, debt is more than just a minor inconvenience or an afterthought. It’s becoming clear that debt is impacting how affordable daily life can be, and the ability to save for future needs like retirement.
This is reflected in results from BDO Canada’s inaugural Affordability Index, which looks at how affordable life is in Canada for various groups. The results showed that 74 per cent of Canadians carry personal debt, with one-in-four reporting that they feel overwhelmed by their debt and they don’t know what to do about it. Of the demographics most likely to struggle with affordability, those aged 18-34 stand out.
For millennials, one-in-five (18 per cent) say they’ve actively delayed having children over the past two years due to day-to-day affordability. They also admit that they are either “poorly” or “terribly prepared” (financially) for buying a home (64 per cent), dealing with unexpected costs (54 per cent) and retirement (67 per cent).
What about millennials debt? The study also found that the average debt for 18-34 year olds is higher than other age groups.
This is no surprise, as younger Canadians are earning less and could be dealing with the costs of raising a family, paying off student loans or other existing debt. There’s no question you can make a connection between debt levels and how affordable young Canadians find their daily life.
So, what can be done? Finding a way to make life more affordable starts with paying down debt. If you can reduce your monthly debt payments, along with the amount of interest you’re paying, more income will stay in your pocket to go toward expenses and, hopefully, long-term savings.
Here are a few tips for young Canadians who want (or need) to start reducing their debt:
Have a strategy for paying off student debt. Student debt can make life unaffordable right from graduation. The Simple Dollar has fifteen excellent tips here for dealing with student debt.
One that stands out is making a smart debt repayment plan. It’s important to prioritize debts that carry higher interest before paying off student loans. If you have a credit card balance, it’s more crucial to pay that off then focus on other balances. An even better change would be to use debit and cash more often, so that you can limit your forms of debt to just your student loan balance.
If you’re more than seven years past graduation, you can also look at more formal solutions to combine your student debt with other existing debts. At this time, filing a consumer proposal becomes an option for you if you’re really overwhelmed.
Focus on your financial education. This one is a bit simpler, but researching money and creating better financial habits is important for young people. The Financial Consumer Agency of Canada (FCAC) has plenty of resources on their website to get started.
There are encouraging signs that Canadians’ financial literacy is improving too — of Canadians with personal debt, more than half (55 per cent) say in the Affordability Index they’ve reduced non-essential needs to help with debt. Four in ten have reworked their budget to cut expenses.
For millennials, it’s a matter of combining these willpower changes with expert help. By kick starting an action plan to reduce millennial debt, life will start to get more affordable and a lot less stressful.