These days, being a 20-something isn’t all that it’s cracked up to be. Today’s recent college graduates face staggering amounts of student loan debt while struggling to gain a firm foothold in a competitive job market. And in the meantime, many of them are still in the process of learning how to manage their finances on their own for the very first time.
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When you’re fresh out of school, it might seem like everyone wants to tell you what to do with your money. But that doesn’t mean you should listen to every tip. Read on for examples of financial advice that may actually do more harm than good.
1. Student Loans Take Precedence Over Everything Else
The Institute for College Access & Success estimates that 71% of college grads have student loan debt, with an average loan balance of $29,400. If you have a mountain of student debt, paying it off is certainly important. But it doesn’t have to come at the expense of your other financial goals.
There are two other areas that need your attention in your 20s: building an emergency fund and saving for retirement. Without some emergency money tucked away, you run the risk of having to rely on a credit card or a high-interest personal loan in the midst of a money crisis. Creating new debt because you haven’t been saving can make it that much harder to tackle your existing loans.
Putting retirement on the back burner is also a bad idea. The sooner you begin saving, the more time your money will have to grow. And you don’t need a lot to get started. If you can carve $15 or $20 out of your budget each week, you can save for retirement without delaying your student loan payoff.
Related Article: Budgeting for a Rainy Day – How to Grow an Emergency Fund
2. Carrying a Balance on Your Credit Card Is Okay
Credit cards are good for a lot of things, like financing big purchases and earning rewards. Plus, getting a credit card in your 20s can help you build your credit score. But it comes with a price if you regularly carry a balance, even if the interest rate is low.
Let’s say you owe $5,000 on a credit card with an interest rate of 9.99%. If you charge nothing else to the card and pay $100 towards the balance every month, it could take five years to pay it off. Along with the principal, you could pay over $1,500 in interest.
The bottom line? Unless you’re comfortable throwing money away, it’s best to avoid carrying a balance on your credit card.
3. You Need A Lot of Debt to Build Good Credit
A good credit score is a must if you want to get a car loan or buy a home at some point, and a positive payment history counts for 35% of your FICO score. That doesn’t mean, however, that you need to have a boatload of debt in order to raise your score. Using a credit card is a fast way to establish credit in your 20s, but it’s not your only option.
Services like RentReporters and RentTrack let you use your rent payments to create a credit history. While some of these services charge a small monthly fee, they may be worth the cost if they can help you improve your score without racking up thousands of dollars in credit card debt.
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Not all advice is bad but when you’re in your 20s it’s best to be selective about the financial tips you follow. Even a minor slip-up can create a financial headache that might haunt you into your 30s and beyond.
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