Fix Now, Chill Later: Gen Z’s Guide to Overcoming Debt

Introduction

You’re cruising down a long, winding highway. The sun shines overhead. The wind courses through your hair, and your favorite song blasts as you’re riding along the clear, open road.

That’s what your first credit or debit card is like. No more relying on your parents’ time and dime. You’ve got your own card, fueled by the money you’ve earned, and your future clear in your sights. The world is yours!

Then, a toll booth stops you, asking more for food, housing, and gas. You finesse your way to paying it later. Once you think you’re in the clear, you’re hit with another toll and another. Your tank is draining, and debt is blocking your view, throwing you further and further away from your dreams.

No more! In this guide, we will discuss how the nation’s current financial climate is impacting you and other Gen Zers. We’ll also provide tips on how you may overcome debt and get back on track to living your best life.

Does Gen Z Have It Harder Financially?

While recovering from the economic impact of COVID-19, America was hit with a massive wave of inflation. According to the U.S. Bureau of Labor Statistics, the prices of living essentials, like food, gas, and housing, rose by more than 9% over the year ending June 2022. Out of all the generations, the state of you and your fellow Gen Zers’ money habits has become a topic of concern.

Yes, most of Gen Z is having a difficult time with their finances, but it’s not really your fault. Your financial journey began either on the cusp or in the middle of the pandemic, which didn’t provide time for you to build financial stability. Your generation has invented your own strategies to survive. Some might be taking advantage of saving opportunities, going straight into the workforce, or sacrificing traditional forms of higher education.

With your grounded mindset and ambition, you owe less debt than prior generations. The LendingTree’s first quarter analysis from 2023 reports that Generation X had the most mortgage and nonmortgage debt, averaging about $168,000, while Gen Z owed less than $35,000. It’s understandable — they have higher credit scores, higher income, and more financial responsibilities that give them access to bigger loans and other lines of debt. Although older generations owe the most money, Gen Z is collecting the most debt and experiencing the highest debt increase with a total rate of about 180% by the end of 2023.

Your lack of financial foundation might leave you vulnerable to inflation, making it more likely that you’ll take out loans and pile up debt. If this is not handled now, you’ll owe more than Gen X in a few years.

What Does Gen Z Struggle with Most?

Debt might be the bane of your and other Gen Zers’ existence, but the source of your financial struggles could be related to your own practices and the kinds of debt you’re obtaining.

Hear me out: debt is not that bad. It can be a useful tool, helping you accomplish those necessary milestones in your life, like buying a house or car. On the other hand, if you’re racking up massive expenses and not managing your loans, you can be burdened with debts that unnecessarily derail your efforts in growing financial stability.

Necessary debt

Necessary debts are investments — student loans, car loans, mortgages, or business ventures — with lower interest rates that assist you in achieving long-term goals. They bring you opportunities to grow your income and live comfortably, all the while giving you a better chance at paying them off.

Unnecessary debt

Unnecessary debts are high-interest expenses, wrecking your attempts at financial stability. They can be payday loans, bombshell medical bills, and necessary debts gone bad from you overusing them. Your credit card is a prime example.

Credit cards work on revolving debt — accumulating purchases that you pay at least the minimum balance on by the end of the month. It’s convenient! You can buy the essentials and treat yourself without overdrafting your checking account.

Your generation’s relationship with credit cards is healthy, mainly using them for “everyday” purchases, like gas and groceries. However, your practices most likely haven’t adapted to inflation. You may still be using your card when prices on everyday expenses have spiked, leading to your card’s balance rising with it. If not paid on time, the past balance, with interest, is compounded onto your current balance, sending you into a cycle of debt.

How to Get out of Debt

There’s no way around it. To get out of debt, you gotta pay it. It can be overwhelming to try paying off balances and interest rates.

Don’t stress! Rome wasn’t built in a day, so don’t feel pressured to take on your debt in one bite. Break up the larger balances from the smaller ones and tackle them one at a time.

Here are a few debt-reduction strategies you can try:

• Avalanche Method: this process involves paying off your highest-interest debts first and paying the minimum due on the rest.
• Snowball Method: without much focus on interest rates, you’re paying off the smallest debts first and moving towards the largest ones.
• Snowflake Method: this involves a slow and steady process of using spare change or side hustles to pay your debts without singling out interest rates or balances.

If it’s still too much, ask for help. Reach out to your bank and work out a payment method suitable for you. Don’t be afraid to ask friends or family — they know the struggle and can support you.

How to Stay out of Debt

Paying off your debt is a heavy load off your back, but that’s only part of the battle. If the factors leading you into debt are still in your system, you can end up back in the trenches or worse. The next step is to develop healthy spending and saving habits to gain back control of your financial future.

Track and trim

Look at your accounts. Are you spending too much money picking up coffee? Do you have any lingering subscriptions? Cut the excess. Put your money towards things that supply what you want while saving money, like buying a coffee maker and limiting yourself to one streaming service instead of four.

Budget

Once you understand where your money is going, create a fair distribution of your income that covers your needs and wants. Whether you try out budgeting systems or construct your own, make sure that the plan you set up gives you room to grow your finances for tomorrow and take care of yourself today.

Take advantage of credit card rewards

After getting out of that hole, it’s justifiable if you want to stay fifty feet from your card.

Before you do that, consider any perks or other benefits that come with your card, like cash back rewards on gas or points for traveling.

That’s not to say you should go on a shopping spree and book flight after flight believing you’ll earn more in rewards. Those are still charges being applied to your card, which you’ll have to pay off, and your potential rewards can be eaten up by interest if you’re not careful.

Paying the full amount of your credit card balance by the due date might allow you a grace period so you may not have to worry about interest cutting into your card’s potential rewards.

Bottom Line

Not having control over your finances can feel like getting lost while driving down an unfamiliar highway — not knowing where to turn and having to make your own way. Carrying unnecessary debt and overloading your credit card could sabotage your chances of progressing in your financial journey.

Don’t fall into the hole of convenience or put it off until tomorrow — act now so you don’t have to worry later. Separating your largest debts from the smallest ones and creating a plan of attack can be an effective way of paying off your debts. When you’re in a better place, cut out those toxic habits and develop healthier ones to get you back on the road to financial stability.