Guest Post: Young People Must Avoid the Debt Trap

dump the debt
dump the debt (Photo credit: Friends of the Earth International)

contributed by Suzan Bekiroglu

Since the implosion of the Subprime Mortgage Industry in 2008, the U.S. federal government has injected over $2.5 trillion into the U.S. economy in the form of quantitative easing measures. This drastic expansion of government and the U.S. deficit has many in an uproar, but the problem is foundational. It’s not only the U.S. government who has a spending problem. The problem is cultural and systemic.

The average credit card debt per household with credit card debt in the U.S. is a whopping $15,956 and total U.S. revolving debt, with 98% being credit card debt, is $801 billion.

It is due to a lack of education and training that most young adults make poor credit decisions and fall into a debt trap early on that is very difficult to climb out of.

82% of college students carry less than $1,000 in their monthly balance, but only 60% of these students are able to pay off their balance each month. That means that 40% of our young adults are accumulating increasing debts each month, and many are on the path toward bad credit debt consolidation.

Here are a few reasons building a strong credit history is important.

When a young adult first moves into the “real world,” credit history can make or break the person. Typically, the first two things a person will do when they leave their parents’ home are:

  1. Rent an apartment
  2. Get a job

The apartment you rent and the job you get may both depend on your credit. Typically, property management companies will run a credit check to make sure you are trustworthy and have a track record of paying your bills. If a person is a college graduate, or even applying for a higher level internship, it is not uncommon for employers to run a credit check on job applicants. A strong credit history may not guarantee a person will be the best employee, but a poor credit history may convey a general lack of discipline and responsibility- which may draw back potential employers.

Contact your local bank loan officer. Take your child into the bank and sit down with the loan officer in order to show your child how a person applies for an auto loan or mortgage, and show them how credit impacts the interest rate they receive. Then, have the loan officer show your child basic calculations concerning how much money is saved over the life of the loan at various interest rates, which are based on credit history. Also, have the loan officer explain what happens when a borrower misses a payment, and what types of fees are assessed. Then, have the officer explain how the bank reports these missed payments to the credit bureaus and what effect this generally has on a person’s credit report. Real-life examples are a very powerful learning tool.

This type of education and understanding will help young people have the necessary understanding of why a strong credit history is such a valuable asset and how to achieve it.

*****

This is a guest post written by Suzan Bekiroglu. Ms. Bekiroglu is a published author, freelance writer and editorial consultant for secureloanconsolidation.com. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the mounting obstacle of paying over $24,000 in student loan debt and became determined to eliminate the debt and become very knowledgeable about money management. Ever since, she has sought to educate others with tips on managing student loans and other kinds of debt, general personal finance and money saving.

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