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The primary risks are high student loan balances, financing a lifestyle with credit cards that exceeds an entry-level salary, and taking on expensive auto loans without a strong credit history, which can set a negative financial trajectory early on.
Challenges include the need to aggressively "catch up" on retirement savings while potentially helping aging parents and funding college for children. Debt at this stage is dangerous due to fewer working years remaining.
Debt forces you to live in the financial past. Money that should be allocated to retirement accounts, emergency funds, or investment portfolios is instead diverted to service old obligations, crippling your long-term wealth-building potential.
An emergency fund acts as a financial shock absorber for unexpected expenses like car repairs or medical bills. Without it, you are forced to rely on credit cards or loans, which can start a cycle of debt.
This occurs when you owe more on the secured loan than the collateral is currently worth. This is common with auto loans in the early years due to rapid depreciation. It makes it difficult to sell the asset to pay off the loan if you become overextended.
