How can young people get themselves out of debt?

Figures show that the number of people ages 16 to 24 who contact the Financial Ombudsman Service for help with loans, credit cards and debt services has more than tripled in the past five years.

It highlights the sharp rise in the number of young people suffering from loans and credit.

Young people seeking help with debt services, including checking accounts, increased 205 per cent from 951 in 2016/17 to 2,899 last year, figures revealed by app W1TTY via a freedom of information request revealed.

Debt services can include debt forgiveness, collection, and management plans, according to the FOS.

The number of young people seeking help with debt services, including checking accounts, has more than doubled in five years, according to figures from the Financial Ombudsman.

Similarly, complaints about credit services including credit cards rose 210 percent over the same period, up 42 percent annually.

Credit services can include consumer credit such as credit cards, brokerages, and information services such as those associated with credit scores and reports.

It also found that as many as 2,858 inquiries were made to the FOS last year about loans from Generation Z members, up from just 947 in 2016/17 – up 213 per cent.

Loans can include home credit, secured loans, personal loans, auto financing and buy now pay later products.

Generation Z was born between 1997 and 2012, and they are currently between 10 and 25 years old.

Ammar Kotait, CEO and Founder of W1TTY, said: “This upward trend in youth seeking support is worrying and reflects an increase in youth turning to loans, credit cards and other credit facilities to support their finances.

“It is important that young people have access to tools and advice to make the right choices when it comes to managing their finances.

Providing financial education on how to spend and invest sensibly is key if we want to avoid Generation Z becoming a debt generation.

Figures from the Bank of England show that consumer credit card borrowing jumped to its highest level in more than a year in November, pushing all forms of unsecured credit to households to £1.2 billion.

This comes at a time when the cost of living is being felt across the UK, with fuel, energy and food all rising over the past year.

To the chagrin of many, the high cost of renting a home, which will be affected by a large number of Generation Z.

The average monthly rent per property has risen to £1,060, according to the HomeLet Rental Index – an increase of 8.3 per cent a year.

Nearly one in five Britons is considering taking out a loan to weather the inflationary storm, according to research by TSB, and believes that young people may be more likely to borrow and overcharge.

Number of inquiries from 16-24 years old to the Financial Ombudsman
inquires 2016/17 2017/18 2018/19 2019/20 2020/21
loans 914 1,496 3,084 2,097 2858
credit services 947 1,539 3120 2,147 2932
debt services 951 1,523 3,109 2,122 2899

‘Younger people are over-represented among groups in debt, so it’s perhaps not surprising that the level of inquiries to the Ombudsman from this age group has also risen,’ said Sue Anderson, StepChange’s chief media officer.

Younger people may experience certain financial stresses compared to other age groups, such as a higher level of financial commitment as a proportion of their income, and a higher prevalence of less secure and lower paid work.

This can make it difficult to resolve financial issues as they arise.

This means that the way credit is marketed and provided to young people needs to be above reproach – paying particular attention to affordability, and ensuring communication is clear and direct, especially for the age group who will have less experience with credit in the past.

How can Generation Z reduce the debt burden?

Use a balance transfer credit card

It’s estimated that nearly six in ten people between the ages of 18 and 24 now have a credit card, according to research by MoneySupermarket.

For those who use credit cards to manage their debt, balance transfer cards have long provided a way to cut back on exorbitant interest payments by putting everything in one place.

A balance transfer credit card allows people to pay off debt by transferring everything they owe to a new card.

This means that they pay interest on one account rather than on several, but balance transfer cards often also come with the promise of 0 percent interest for a set period of time.

All in one place: Balance transfer credit cards can help people manage their finances by allowing them to consolidate debt and save on interest payments

All in one place: Balance transfer credit cards can help people manage their finances by allowing them to consolidate debt and save on interest payments

For those seeking the longest possible interest-free period, Virgin Money’s 35-Month Balance Transfer Card gives them nearly three years interest-free on any transfers made within 60 days, making it the longest-running deal on the market.

However, it does come with a 2.94 percent fee which means they may be able to find cheaper options if they are willing to accept a shorter 0 percent period.

Anyone with £3,000 in balance, paying a minimum monthly payment of 3 per cent (£90) with an annual interest rate of 29.9 per cent, could save £2,471 by transferring their balance to a Virgin card, up to After including the 2.94 per cent (£87) balance transfer fee.

A marginally cheaper alternative could be the Sainsbury’s Bank 32-Month Balance Transfer Credit Card which offers 0 per cent interest on balance transfers for up to 32 months, subject to eligibility.

The Sainsbury’s Card charges a balance transfer fee of 2.24% for transfers made on application.

For those looking for the longest interest-free period with no transfer fee, the Sainsbury’s 21-Month Balance Transfer Credit Card offers a 0 per cent balance transfer period of up to 21 months with no transfer fee.

Talk to the lender or landlord

The worst thing to do if you are struggling to pay off debt is to bury your head in the sand.

It is always helpful to communicate with your creditors, whether they be your credit card provider, loan provider, or energy supplier.

Customers may be able to reach an agreement with them to pay off their debts, or to have more time to resolve their situation.

“For these young people struggling with debt, the worst thing to do is ignore it — it won’t go away, and it can quickly deteriorate and end up ruining your credit history,” says Andrew Hager, personal finance expert and founder of MoneyComms.

Talk to your lender, explain your situation and try to reach an agreement.

“The lender may, depending on the circumstances, be willing to accept lower payments or freeze the interest for a few months to try to give you some breathing room to help resolve the issue.”

The same applies to those who struggle to cover their rent. It is always worth speaking to the landlord or their managing agent before the inevitable arrears run up.

If You Don't Ask You Don't Get: If you're struggling to pay the rent, it's always worth speaking to the landlord to see if some sort of agreement can be worked out.

If You Don’t Ask You Don’t Get: If you’re struggling to pay the rent, it’s always worth speaking to the landlord to see if some sort of agreement can be worked out.

Maxine Fothergill, President of ParxeMark, says: “For existing tenants who have found they are starting to struggle in today’s climate, the best thing to do is to speak with their agent.

Many fear that they could face eviction if they raise the issue of affordability, but this is not the case.

The agents are in a good position to negotiate between tenants and landlords and come up with a solution that works for everyone.

“Tenants who are reluctant to get involved when problems arise and later find themselves in increasing arrears are at greater risk of landlord action than those who reach out once problems start.”

Moneyhub brings together bank accounts, credit cards, investments, savings and borrowing under one umbrella

Moneyhub brings together bank accounts, credit cards, investments, savings and borrowing under one umbrella

Use a money management app

There is a wide range of money management apps and websites specifically designed to help people manage their money more effectively.

Some apps calculate how much you can set aside and put away automatically, others accumulate excess cash as you spend, and some allow you to set savings challenges yourself.

Apps such as Moneyhub, Emma, ​​Money Dashboard and W1TTY can be a great way to allow customers to better understand and visualize the state of their finances.

Moneyhub categorizes transactions into different types of spending, while spending analysis shows users exactly where their money goes each month.

This gives them an insight into their spending habits, and keeps them informed with timely alerts.

Emma, ​​which describes itself as your “financial best friend,” is a free app designed to help users avoid overdrafts, cancel wasteful subscriptions, track debt, and save money.

Money Dashboard has been voted the best personal finance app in both 2020 and 2021 and is one of the most popular apps available, with half a million users.

“Financial Buddy”: Emma analyzes transactions to give you a full list of recurring payments across your accounts, allowing you to better track and cancel wasteful subscriptions

It allows customers to set up multiple budgets and send them notifications in case of overspending, while also giving them the ability to predict any future spending.

W1TTY allows you to manage your daily spending from the app, see and track your spending history and improve your financial literacy via the in-app financial education program.

Talk to debt experts

One of the best things those with debt can do is talk to debt experts who can give them professional advice on how to manage their money.

There are a number of charities and services that can help including Citizens Advice, StepChange and the National Debt Line.

They can offer free advice to clients and offer a range of options to help people get out of debt.

StepChange says that if you have any of the following, you should consider contacting a debt counseling service.

1) Negative budget – more exits than incomes

2) Arrears on any ‘priority’ household bills eg mortgage, rent, council tax or utilities

3) The disposable income is not enough to cover the minimum debt repayments.

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