Debt feels like a trap – especially when you’re young and still finding your financial footing. With student loans, credit cards, medical bills, and more, debt chains you to the past, weighing you down. But you have the power to break those chains.
Only about 23% of Americans are debt-free today, and as a young Black American, you face even steeper obstacles to financial freedom. Discrimination in housing and employment, lack of generational wealth, and targeting by predatory lenders stack the odds against you. Still, many find a way forward. With discipline and determination, you can too.
Work on Yourself
The first step is self-reflection. Be ruthlessly honest – Unless your debts are mostly business-related, you should have realized that your habits are to blame for your current debt situation. Each time you buy something you don’t need, buy expensive junk food and clothes just to impress someone, you dig your debt hole a little bit more. There’s no coming out of debt until you work on your appetite, habits, and attitude towards life.
This also includes creating a better mental image of yourself as a success and not an average black person at the mercy of the financial system. Begin today by listing out those things that you need to cut off and then create strategies to achieve that goal. You may need support from people around you, so don’t pull back from being accountable to a friend, colleague, or family member.
Gain Financial Knowledge
Your debt situation often indicates a deeper problem: a lack of financial knowledge. Unsurprisingly, many people who struggle with debt are quite ignorant of healthy financial behavior, such as savings and investments. To come out of debt, you’ll need to learn how to save, make efficient budgets, reduce unnecessary expenses, and find good investment opportunities.
Of course, you won’t become a financial expert within a short time, but with consistency, you can change your poor financial habits and build new ones to help you get out of debt and build wealth.
Knowledge is power when it comes to personal finance. Read books, take courses at your local library, and learn from financially savvy mentors. Arm yourself with an arsenal of money management tools – budgeting apps, retirement calculators, and more. Become a financial expert one step at a time.
The path to debt freedom requires sacrifice – saying “no” to instant gratification and lifestyle inflation. But staying focused on your goals gives each small act of self-denial meaning. Picture the peace that comes with financial freedom. Let that drive you as you work your way out of debt and into a secure future.
Prioritize Your Debts
All debts are bad, but some have worse effects than others. Getting out of debt requires you to prioritize your debts, placing the worst debts first for clearance. It makes sense to pay off the loan with the highest interest rate first since high-interest debt accumulates interest over time and can become more costly. This strategy is known as the “avalanche method.” For instance, if you have two loans that take 20% and 30% of your monthly income, respectively, it is probably best to focus on clearing the latter first to reduce the amount you pay monthly. You should also consider the loan duration and final amount repayable.
Avoid Black Tax
According to Wikipedia, Black tax is a term that refers to money that Black workers, especially professionals and others with higher income, give to their parents, siblings, or other family members, often out of obligation or a deeply ingrained sense of family responsibility.
Say No to Black Tax without guilt. Black tax is high among the Black population of America. Interestingly, this is also the group with 37% of families with debts equal to, or more than, their assets. Of course, we have a duty to support our community, but when it drives you into debt or hurts your financial progress, it is time to take a step back and strategize. Some of the ways to avoid black tax include turning such funds into educational investments so your dependents can learn useful skills, setting boundaries, and being firm with your decisions.
If you are in debt and struggling to come out, you have no business paying black tax. Ensure you can commit to your finances without the added responsibilities of others, and you’ll go further. This may be difficult at first, but take time to adjust, and you’ll be better off.
Seek Financial Advice Before Taking Loans
You may need to take some loans while you are working on coming out of debt; that is understandable in certain cases where you have emergencies. One thing you can do is to seek financial advice before taking such loans. Consult an expert or spend time researching the pros and cons of each loan before signing those lines. There’s a high chance that you can talk yourself out of taking more loans when you understand the full impact of their conditions. It is also advisable to find non-interest loans in such cases.
Limit Credit Card Spending
A high number of Americans struggle with credit card debts, and that’s because they are allowed to spend money upfront, up to a limit. If credit card debts are part of your current situation, then you know how difficult it is to manage them. You must urgently limit your credit card spending to certain emergencies or investments. Do not use your credit cards to buy liabilities.
If you must have a credit card, go for only one with low rates and renegotiations, and ensure you pay the loan promptly. Credit card debts can hurt your financial rating, making it difficult to get mortgages and auto financing.
Negotiate With Creditors
You can negotiate with your creditors for lower rates or more time to repay. Some creditors may be willing to grant you a moratorium to ease the pressure on you. You can even negotiate a debt consolidation to move all your debts into one place. This requires tact and patience for the best result.
If you can afford to, you should use a loan negotiation service or join credit unions to take over your loans. The key is to find more favorable terms and that will allow you to pay your loans easily and faster.
Increase Your Income
Increasing your income will pull you out of debt faster as you can afford higher repayments. Take on extra jobs, learn new skills, and consider switching to a high-income career if possible. Remember that you are young and can still take some steps that become riskier as you age. Leverage your youth to become debt-free. Learn new skills and explore freelance side jobs that won’t take so much time from your regular jobs.
Final Thoughts
Getting out of debt as a young person can be daunting, especially for college and business debts. But all your hard work and patience can yield good results, so you pay off your debt within a few years and become debt-free. Some mistakes to avoid include using illegitimate debt relief services, using your emergency savings, and spending more than you should. Get your finances in order, and you’ll have a better chance at creating the life you want.
