Credit card debt, student loan debt, medical debt — whatever form debt takes, it can hold you back. And when you’re a young professional, you can’t afford to let debt keep you from building momentum in your career, finances, or personal life.
But if you do have debt, don’t despair. When you’re young and just starting out, it’s the perfect time to tackle debt.
At this stage in life, you have fewer demands on your money. You also have the flexibility and focus to pay off your debt and establish healthy financial habits that can last a lifetime.
Of course, you’ll need to figure out how to pay off your debt while making progress on your career goals, living expenses, and other financial priorities. Here are six tips young professionals can follow to quickly knock down debt.
1. Treat your debt payoff like a second job
Take your debt as seriously as you do your job by crossing off the following tasks from your to-do list:
- Set up a system to track your debt repayment and personal financial performance.
- Research and try out new debt strategies to find one that works for you.
- Establish smart goals and incentives that will keep you motivated and on track for paying down your debt.
In a way, paying off your debt is like working toward a raise. The money you’ll free up in your monthly budget once your debt payments are gone — and the interest you’ll avoid when you pay off debt early — will lead to a huge chunk of money in your bank account.
You know how to make things happen. Don’t hesitate to give debt payoff everything you’ve got and treat it like a second job. You already know what it takes to hustle.
2. Hustle your way to higher pay
As a young professional, your biggest financial opportunities will be at work. In fact, 20-somethings experience a whopping 60 percent growth in income by age 30, according to a PayScale report.
Plus, the pay bumps you gain in your 20s will be the foundation for your pay throughout your career. The more your pay increases, the more you’ll make in coming years and decades. And don’t forget: The more money you make, the more cash you’ll have to pay off debt quickly.
When you work toward a raise, ask strategic questions to find out how to be successful in that position. Then, work toward those expectations and go above and beyond whenever possible. That way, you can ask for raises when you feel you’ve earned them.
Lastly, don’t put company loyalty above your own compensation. In today’s world, staying at the same company doesn’t always pay off. According to an analysis from Forbes, employees who stick with a company for more than two years earn about 50 percent less over a lifetime than those who switch jobs more often.
Interviewing and fielding new job offers often can be the fastest way to boost your pay and get more money to put toward debt.
3. Adjust your debt strategy to match your income
Of course, working toward a pay raise isn’t enough. You also need to make sure you put the extra money from your raise to good use and adjust your debt repayment accordingly.
Let’s say you’re starting out at an entry-level position and earning just enough money to make ends meet. You might not yet be in a position to put a lot of extra funds toward paying down your debt — and that’s OK.
But maybe you get a 5 percent bonus or switch to a job with 10 percent higher pay. You might be tempted to spend that money on a down payment for a new car or move into a more expensive apartment.
However, instead of changing your spending to match your new pay, keep spending at the same level. You will preserve your higher compensation as “extra” money you can use to pay down your debt more quickly. Believe me: New cars never smell as good as debt freedom feels.
4. Don’t get caught in the comparison game
Of course, continuing to spend and live like an entry-level grunt when you’ve worked your way up can be hard — especially when you’re surrounded by friends or colleagues who don’t think twice about spending money they have (or money they don’t).
It’s easy to get caught up in comparing yourself to others, to see spending and lifestyle as a competition. Your new coworker has a BMW, after all — why shouldn’t you?
It’s natural for co-workers to be competitive. But don’t get hung up on status symbols, expensive experiences, or material things to the point of setting back your financial goals.
Turn it around and use your competitive streak to work toward your debt goals rather than against them. While friends and co-workers are hitting the bars or vacationing overseas, make getting out of debt your mark of success.
Instead of being the biggest spender, work toward being the first of your friends to get out of credit card debt or pay off student loans. Focus more on doing what’s best for you right now, regardless of outside pressures or other people’s choices.
5. Use debt stress as a motivator
Often, however, money stress doesn’t come from peer pressure but from your own financial worries. Maybe just thinking about your debt and the sacrifices it would take to pay it off makes your stomach clench or your heartbeat speed up.
If you’re stressed about your debt, you’re not alone. A recent Student Loan Hero survey found debt to be the top money stressor for millennials.
But when borrowers stress about their debt, it often results in behaviors that mask the problem rather than address it. They often procrastinate taking action or spend more money to generate a false sense of security and status.
Just remember: You go to work and deal with stress every day — maybe you even thrive under pressure. You’ve learned how to turn a demanding situation into a healthy motivator rather than a toxic drain on your mental resources.
Do the same with your finances. Whenever you feel yourself reacting negatively to your financial situation, slow down. Think through the problem this stress is helping you notice. Then, make a plan to address the issue and knock out this financial obstacle.
6. Get smart about paying off debt
You’ve probably noticed at your job that working hard doesn’t get you nearly as far as working optimally — putting in time and effort where it really counts.
The same principle applies to your finances. You don’t have to endlessly struggle or sacrifice if you’re smart about your debt payoff approach. Find effective ways to work through money problems, remove financial obstacles, and maximize your efforts.
For example, let’s say you’re paying down a high-interest debt. If you have decent credit, you can consolidate your credit card debt or refinance your student loans to lower your interest rate. Then, you can spend more money paying off your debt rather than paying interest to your lender.
Or maybe you want to make extra payments on your debt but can’t seem to squeeze it into your budget. Well, instead of making one monthly payment, try cutting that payment in half and making it every two weeks. You’ll lower your balance more steadily and pay less interest. Plus, after a year, you’ll have sent 26 biweekly checks — painlessly making an extra month’s payment.
As a young professional, you might be tempted to put off paying down debt. You might think you can’t afford to pay extra right now or that it all will be easier if you wait until you’re earning bigger paychecks. Don’t make the mistake of losing the time you have right now. Paying down debt is crucial to growing your net worth.
Ultimately, the real benefit of working toward debt payoff goals is how it shapes your overall money management style. As you work toward paying off your debt, you’ll develop self-discipline and money habits necessary for building lasting wealth.