How Millennial Women Can Take Control of Their Debt
In today’s “Financially Savvy Female” column, we chat with entrepreneur and millennial money expert Tonya Rapley. She is the founder of My Fab Finance, owner of Club Loofah and the co-host of Crackle’s original series, “Going From Broke.” Here, she shares her best tips for millennial women who are struggling with debt.
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The average millennial consumer has about $27,000 in non-mortgage debt, according to the Experian 2020 State of Credit report. And while that’s a hefty amount of debt for anyone to take on, it’s more challenging for women to pay this debt off. According to Fast Company, “Millennials are all but required to go to college to land a well-paying job, but women, once out, face skyrocketing costs of living and encounter fewer opportunities that would offer meaningful financial support. For the same job at the same companies, studies have found women are offered lower pay than men 63% of the time.” And with a lack of affordable childcare options, many women end up leaving the workforce — at least temporarily — to take care of children, which means it will take longer for them to pay off existing debt.
Although the decks seemed to be stacked against millennial women when it comes to getting out of debt, it is possible to take control of your debt and regain your financial freedom. Rapley breaks down how to do it.
Figure Out Which Debts To Pay Off First
The first step in getting out of debt is determining which debt needs to be eliminated first.
“You need to prioritize any debt that is in negative standing, could pose any potential credit risk to you if left unaddressed or any debt that you need to rehabilitate,” Rapley said. “Next, you can decide to pay down either the smallest debt that you have, or you can pay down the debt that is costing you the most money — meaning it has the highest interest rate. It’s really up to each person. The most important thing to do is make sure that you are paying toward your debt, and don’t ignore it because it will not pay itself.”
When In Doubt, Pay the Smallest Balance First
If you aren’t sure if you should prioritize the smallest debt or the highest-interest debt, Rapley recommends starting with the smallest debt — also known as the “snowball method.”
“You pay the smallest balance and [then] the next smallest balance then the next smallest balance,” she said. “A lot of people are in debt because they enjoy immediate gratification. We can reverse that and have immediate gratification when it comes to debt elimination, rather than prolonging the gratification by starting with the most expensive debt or the largest debt. It’s largely up to the individual, but I’ve seen that people tend to enjoy the snowball method more, and we know that things we enjoy we are more likely to keep them up and continue to do them.”
Cut Back on Expenses While Focusing on Debt Repayment
It will be easier to pay off your existing debt if you do your best to not take on any more debt. This means cutting back on expenses wherever you can.
“You can review any expenses that are unnecessary and find alternatives,” Rapley said. “Maybe you have a gym membership, and it makes sense for you to work out at home for a couple of months — especially if that gym membership is expensive. Maybe there are certain services you pay for that are unnecessary that you can cut back on until you at least pay off some of your streams of debt.”
But don’t feel like you have to permanently deprive yourself of all the “unnecessary” things that bring you happiness.
“The important thing to remember is that ‘not now’ doesn’t mean ‘not ever,’ so you’re making short-term sacrifices for a long-term improvement in your finances,” Rapley said. “I don’t believe in deprivation as a financial freedom strategy, so I’m not going to say, ‘Don’t do this ever again.’ Do it in hyper moderation, which means instead of getting your coffee from Starbucks five days a week, you allow yourself to do it one day a week. So, just look at it that way.”
Remember That While Getting Out of Debt May Seem Impossible, It Is Doable
It’s easy to get overwhelmed when you’re in the process of paying off tens of thousands of dollars worth of debt. But just remember that every step you take in the right direction is getting you closer to financial freedom.
“Start small,” Rapley said. “Start one step at a time if you can and then move onto the next step. I think a lot of people try to do too many things at one time without having a clear understanding of why they are doing those things, so start with what’s most important to you as it relates to your finances, do that well, and then add on other things. Don’t necessarily try to do everything at once. And if you need to look for resources, reach out for help or find a supportive community of people also trying to pay off debt. They’re all over the internet and they can also help it seem less daunting.”
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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