Bankruptcy in Your 20s: How to Avoid It, What If You Need It, and How to Build a Successful Financial Life
As a bankruptcy lawyer in Memphis, I sometimes hear from young people who have way too much debt. But is bankruptcy the right answer when you’re just getting started? If you’re considering bankruptcy in your 20s, there’s a lot to keep in mind.
Growing Wealth in Your 20s
When you’re young and just starting out, there’s a lot you can do to set yourself up for financial success.
Unfortunately, a lot of young people think about the present and forget about the future. But if you’re willing to make wise choices right now, you’ll look back years later and be grateful to your younger self.
Here are some steps you can take in your 20s that will help you for the rest of your life:
Create a budget.
Creating a budget is the first step in managing your finances. Start by tracking your income and expenses, then prioritize your spending to ensure you’re living within your means. Resist the urge to keep up with others, and instead focus your budget on your own goals and values, and on the amount you bring in every week or month.
Save for emergencies.
Building an emergency fund can help you avoid debt when unexpected expenses arise. Aim to save at least three to six months’ worth of living expenses. This will take a lot of time and patience, but it’s worth it.
Find someone who will mentor you in your financial goals. Even just a check-in a couple of times a year with someone a little older and wiser will help you stay accountable. You’ll notice as questions come up, someone with a bit more life experience might make a big difference and save you time and worry.
Invest in your future.
Invest in your future by contributing to a retirement account. Start early to take advantage of compound interest over time. If your job doesn’t offer retirement benefits, open your own account.
How to Build a Strong Credit Score in Your 20s
Your 20s is also the perfect time to build a good credit score. You’ll want to get a credit card, but only use it for purchases you can pay back immediately with what’s already in the bank.
Here are some additional tips for building good credit:
- Avoid taking on unnecessary debt, like car loans or personal loans.
- Make on-time payments (easier to do if you only spend on credit with money you already have).
- Pay off high-interest debt first. Do you have multiple kinds of debt? Maybe a car loan, credit cards, and student loans? High-interest debt, like credit card debt, can quickly spiral out of control. Focus on paying off these debts first to avoid accumulating more interest over time. Look at all of your debt and see which one has the highest interest. Make sure to prioritize that debt moving forward.
- Keep track of your credit score and learn about how scores are determined.
- Be patient and stay committed to your financial goals, even when faced with obstacles or setbacks. It takes most people a lifetime to build wealth.
By taking these steps and adopting a long-term mindset, you can avoid bankruptcy in your 20s and set yourself up for financial success in the years to come.
When Something Goes Wrong (Debt and Loss in Your 20s)
When young people come and see me about filing bankruptcy in their 20s, it’s usually for one of two reasons.
First, sometimes medical bills make it impossible to build good credit or even pay for basic needs. No one should become homeless or hungry in their 20s because of a medical emergency. But sadly, it happens.
In a situation like that, you may want to consider bankruptcy, just so you have the chance for a fresh start. You deserve every opportunity to build wealth like other people, and starting over may actually help in an extreme circumstance like this.
Second, even at a young age, unwise spending can cause serious problems. Perhaps in your first few years at a new job, you didn’t practice wise spending and got way over your head in credit card debt and car expenses. Now, as student loans come due, you realize you can’t stay afloat.
If it’s an extreme situation, bankruptcy in your 20s may help. That said, you should be very careful and make sure to do it wisely. We don’t actively encourage people to file in their 20s unless there are no better options, because it can slow you down right when you should be building your finances for the first time.
But if you’re willing to learn about how to manage your money in the future and take our advice and resources on how to build wealth moving forward, bankruptcy may offer you the right starting point to try again.
Bankruptcy in Your 20s: How We Can Help
Our Memphis attorneys don’t push bankruptcy on young people. In fact, we don’t push bankruptcy at all. We see it as a tool that can help some people get a fresh start and live a future without debt. Under certain conditions, it may help someone in their 20s, but not always.
We’re so committed to the financial health of our clients that we published a free guide called Life After Bankruptcy that gives you the tools to rebuild. We want everyone who files to leave stronger than they were before.
If you’re considering bankruptcy in your 20s, you should talk with a lawyer who won’t push you to file. Our attorneys are compassionate and thoughtful in our approach. We can help you figure out whether this big step is the right choice for you.
If it is, we’ll help you file in a way that sets you up for future success. If it isn’t the right choice for you, we’ll talk through your options so you can start growing your money in a better way.
There’s no charge for the appointment, so give us a call today, or fill out the form below to discuss your options.