A millennial's guide to getting back in the black

If you’re reading this because you’re concerned about your debt and looking for resources to help you get out of the red, you are in good company. Household debt in the US has increased 37% from 2000 to 2011, the Census Bureau reports. The good news is your age group has seen the smallest increase in debt in 10 years. The bad news is your parents and grandparents have seen the largest increase.

·       Under 35 – 12.6% increase

·       Age 35-44 – 24.6% increase

·       Age 45-54 – 36% increase

·       Age 55-64 – 64% increase

·       Over age 65 – 115% increase

Don’t make the mistake of thinking you’ve got plenty of time to reverse your financial situation, and don’t be afraid to ask for help. Financial guru Dave Ramsey’s snowball plan for paying off debt is a good start.

List your obligations Create a spreadsheet (or write it on paper) listing all of your debts and sort them from the lowest amount due to the highest amount due.

Stop spending - start saving Ramsey says the first step is to accumulate $1,000 in savings, which you won’t touch except for emergencies. While you’re saving, pay only the minimum payments owed on your loans. Once you reach $1,000 in savings, take the amount that you were setting aside each week and add that to the minimum payment of the account with the smallest balance.

Pay the smallest debt Once that’s paid, the next largest, is up. Each time the debt is paid down, the more money in the pocket you will have for the larger debts— the snowball effect. To see how long it will take you to pay off a credit card if you pay minimum payments or a monthly fixed amount, use Bankrate.com’s credit card calculator. You’ll need to know your card’s interest rate (Note: Tightwad’s favourite financial guru Gail Vaz-Oxlade says the exact opposite – see here).

Cash in an annuity If you are receiving periodic annuity payments, you might be able to cash in all or a portion of your future payments and use the lump sum of cash you receive to pay your loans sooner. A company like J.G. Wentworth will evaluate the terms of the annuity payments you receive and give you a quote for purchasing all or part of those payments.

Use an accountant However you get yourself out of debt, run it by an accountant or financial adviser. If you don’t have one, ask friends and family to recommend someone. The small consultation fee is worth paying if it means one more step to financial freedom.