The good news, though, is that young adults are taking steps to get their overall debt under control, reducing their balances on credit cards and their debt levels for mortgages, auto loans, and other types of debt. With 16 percent of 18- to 29-year-olds having no credit cards, young adults are getting the message that managing debt early on is essential to overall financial health.
With the goal of managing debt levels firmly in mind, let's take a look at four things you should do to manage your debt prudently and successfully.
1. Get a Handle On What You Owe.
In managing debt, the first challenge is figuring out all of what you owe. By pulling a free copy of your credit report from annualcreditreport.com, you'll get a list of loans and credit-card accounts that major credit bureaus think you have outstanding, along with contact information to track down any unexpected creditors that might appear on the list.
2. Look for Ways to Establish a Strong Credit History.
Having too much debt is always a mistake, but going too far in the other direction can also hurt you financially. If you don't use debt at all, then you run the risk of never building up a credit history, and that can make it much more difficult for you to get loans when you finally do want to borrow money. The better course is to use credit sparingly and wisely, perhaps with a credit card that you pay off every month and use only often enough to establish a payment record and solid credit score.
3. Build Up Some Emergency Savings.
Diverting money away from paying down long-term loans in order to create a rainy-day emergency fund might sound counterintuitive in trying to manage your overall debt. But especially if your outstanding debt is of the relatively good variety -- such as low-rate mortgage or government-subsidized student-loan debt -- having an emergency fund is very useful in avoiding the need to put a surprise expense on a credit card. Once you have your credit cards paid down, keeping them paid off every month is the best way to handle debt, and an emergency fund will make it a lot easier to handle even substantial unanticipated costs without backsliding on your progress on the credit-card front.
4. Get On a Budget.
Regardless of whether you have debt or how much you have, establishing a smart budget is the best way to keep your finances under control. By balancing your income against your expenses, you'll know whether you have the flexibility to handle changes in spending patterns or whether you need to keep a firm grip on your spending. Moreover, budgeting will often reveal wasteful spending that will show you the best places to cut back on expenses, freeing up more money to put toward paying down debt and minimizing interest charges along the way. Check out this article from DailyFinance for more tips on budgeting.
You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.