It’s no secret that millennials face a more uphill battle financially than the boomers who came before them. They’re weighed down by college debt, careers that don’t put them on a pathway to paying off that debt, and a bleak job market that hasn’t been right since the Great Recession.

But what can an entire generation that’s lived their lives based on the promises of America do now that those pacts are broken?

We spoke to Lynnette Khalfani-Cox, a personal finance expert and author of the New York Times best selling book, Zero Debt to get some answers. Here are the biggest financial challenges she thinks millennials are facing and how they can overcome them.

Student Loans:

Student loan debt is one of the biggest challenges millennials face. Currently, there’s about $1.5 trillion in outstanding student loan debt nationwide.  Now, we’re at a point where it’s hurting their ability to buy homes and other purchases that push the economy forward. Cox says the big problem with student loans is that not paying them can lead to lifelong hardships.

“One of the biggest risks of student loans is that if you go into delinquency or default, that college debt can literally haunt you to the grave,” Cox said. “I’ve interviewed people who have been on social security and had their checks seized in part because they were in default on their student loans.”

That’s scary, yes, but Cox says there are ways to deal with it.

  • Know your options for repayment: Cox says that on the federal loan front, your options are going to be limited to four kinds of repayment strategies. There’s the standard loan repayment program that gets you out of debt in about ten years. It has a higher monthly payment, but it’s the option that usually leads to being in debt for a shorter period of time. Then there’s the extended loan repayment option that stretches out your payments over time and can give you financial relief immediately because you’ll have improved cash flow, but you’re stretching out your payment for 20 years. Cox also says there’s income based repayment options that people can take advantage of.  
  • Ignorance is not bliss: Cox says that most people get overwhelmed with student debt and just go with any repayment options. She says the options above are great, but that there are also programs where both private and public employers will pay off your student debt. She says that if your job doesn’t currently have one, that it never hurts to ask.

Saving and budgeting.

If millennial’s college debt is bad, then the picture is even bleaker for their savings accounts. A 2018 report from CNBC showed that millennials are already grossly behind in their savings because of high student loans and other factors. Saving is important, it’s how you maintain your financial footing to do things like buy a new home or get through a financial crisis. Most importantly,  it’s “how you pay yourself first” Cox says.

According to Cox, a lot of millennials graduate college with the hope of having a high paying job or having the same career trajectories as other people. She says graduating college and not being in the place you thought you’d be financially can present some savings and budgeting challenges. Here’s how she thinks millennials can get through them:

Change your thinking around budgeting: Cox says savings is not exclusively a millennial problem but it’s something they need to get under control early to help them later in life. She says people think a budget is about restriction, but it’s actually the opposite.

“You have to look at budgeting as a spending plan of action. Your budget is your blueprint, it’s your guide that tells you how you choose to prioritize the things in your life that are most important to you.”

Essentially, a budget forces you to realistically assess what’s important and it allows you to do it on your own terms.

“Some people have never sat down and laid out all their bills in black and white and compared their monthly expenses to their take home pay.”

Cox says budgeting is a good way to figure out whether you’re in a deficit or cash flow positive. She says if you are cash flow positive (meaning you have money remaining after bills), you should determine how you’re going to use those dollars to help better secure your financial future.

“You’re going to need to choose what’s the best uses of those resources. ‘How can I save on some things, where should I put this money to save?”

Although it requires time and work upfront it will pay off in the long run, and that it’s about lining up your money and seeing what the priority for your life is.

“If traveling is a priority, as it is for many millennials, then fine. I tell you people you should plan for travel and factor that into your budget. I don’t believe in a deprivation budget, where you’re literally budgeting everything to the last penny and dollar, and if you spend $7.22 more, then your whole budget is ruined for the month. That’s living way too close to the bone.”

Cox says people run into trouble when they go into debt to travel or other activities instead of just saving and budgeting for it. She says people should try to exhaust every savings plan available, whether its retirement savings, 401k, employer matches, etc.

“You really can’t afford not to save. Every month that you don’t save you’re getting yourself deeper in the hole and you’re getting further left behind.

Lack of home ownership.

Earlier in this piece we talked about how there’s $1.5 trillion worth of student debt floating around out there. According to the same data we referenced earlier, that’s about 5.6 million homes.

Cox says that the average age for homebuyers has been rising year after year, and that doesn’t bode well for a major part of the American economy moving forward. She says beyond the challenge of obtaining a down payment, millennials also face the challenge of having a bad income to debt ratio because of the massive student debt they carry.

“If you’re paying $700 a month in student loans then that might knock your DTI ratio out of whack and make it hard if not impossible to qualify for a mortgage.”

Again, although it’s scary, Cox gives steps millennials can go through to make sure they’re in the best position possible to purchase a home:

Tame your debt and focus on paying down credit card debt because it carries higher interest rates.

“If you have a $20,000 credit card bill and you’re paying two percent they’re telling you to pay $400 a month. You can have $20,000 in student loans and your payment could be $180.”

Working on credit card debt first also helps your credit score, which will ultimately put you in a better position to get a home.

Another pathway to home ownership is by looking into the several downpayment assistance programs that are out there for first time home buyers, which Cox reveals people don’t take advantage of enough. She says different states have different state or county assistance options that will help you in the form of a grant or a forgivable loan where you get a portion of the downpayment. Then, as long as a buyer agrees to live in a house for a set period of time, the loan is forgiven.

Cox says another part is just understanding how the home-buying process actually works.

“A lot of millennials say ‘Oh I can’t do it because my credit is bad or I don’t enough savings.’ They have a hazy perception of what it takes to become a homeowner.”

Cox shares that some of the reason millennials face an uphill battle financially is because they were sold dreams without really discussing the pitfalls and struggles that come with acquiring them.

“Millennials are walking in the shadows of what we as Gen-X’rs experienced, in terms of being sold a really big bill of goods. Part of it is to aspire to education, to aspire to things like home ownership. Nobody really seriously talked, until recent years, about that nasty four letter world on the other side of getting a degree or becoming a homeowner.”

The four letter word she’s referencing is “debt.” Although millennials carry a lot of it, Cox believes they can overcome it, and realize the dreams that were sold to them.