Emerging from university life into a first-time job is exciting, and often comes with more financial freedom – but there are dangers that come with this autonomy that all young adults need to be aware of.

The ‘buy-now-pay-later’ trend may be extremely appealing to working students or entry-level young professionals with a regular stream of income, but it can be equally risky for 18 to 25-year-olds in the long-term if debt is not serviced in a responsible manner.

While entering into a part-time student job or a first professional job will, to some extent, provide the security needed for lenders to offer credit, the onus still rests with the individual to ensure that they track their purchases and credit payments responsibly and timeously.

This involves balancing their credit grants against desired purchases such as a seasoned wardrobe, the latest computer and technology gadgets and so forth. A greater tendency towards careless spending can lead to many taking on too much debt – and having to face the repercussions afterwards.

Although access to credit can help to pay for educational loans and improve lifestyle, it can also hinder financial independence in the long run. Responsible spending, on the other hand, can set youth up from the start with a good credit record that will serve them well later in life.

The following tips will help youth to avoid the debt-trap:

Budget – never try to buy on credit without knowing you can afford the monthly instalments. When applying for credit, ask the credit provider to show you how much you will pay every month. Calculate how much you can afford to spend every month and do not exceed it.

Pay always pay your debts on time every month. Not only loans from banks, but other accounts, such as clothing stores – and pay the full amount owing to avoid the risk of higher interest rates on monthly payments. 

Communicate – if you are unable to make a payment due to unforeseen circumstances, talk to the credit lender concerned and make alternative arrangements to pay back what you owe. If you fall into arrears on your repayments it will have a negative effect on getting access to credit in the future.

Understand – familiarise yourself with the information on your credit report. You are entitled to one free credit report per year and it is a good idea to get into the habit of checking your credit report annually to make sure that the information is accurate and correct. It also ensures you are aware if you need to work to improve your credit rating before applying for a major purchase.

Save – keep a monthly savings account with funds in it purely for emergencies. A savings habit early on in life will help you to reach future financial goals such as retirement.

Debit not credit – use your debit card instead of a credit card for everyday purchases. That way you can make sure you don’t over-extend your credit.  The simple rule is: if you don’t have the cash available, you can’t have the item.

Ask for help – always speak up if you find yourself in a financial trouble, either to a professional debt counsellor or a bank adviser who will be able to tell you who to go and talk to.

“Good credit management in your late teens and early twenties can pave the way to a brighter future. When managed well, a steady credit record will build the history you may need for making the important purchases. 

“Bad credit management, on the other hand, can lead to financial pressures and burdensome debt. Be cautious with debt and intentional about building a good credit record.  It’s a good strategy to use from the start of your financial independence right through to the rest of your life.”