The financial concerns of generation Y, people born between 1976 and 1991, can be summed up with one word: debt.

Unlike other generations, Generation Y members are exposed to both credit and debt from an early age but are often not equipped to manage either.

Bernard Salt, demographer with chartered accounting firm KPMG, says this group has three main types of debt to contend with.

"They have HECS (Higher Education Contribution Scheme) debt, which can be $30,000, $40,000 or $50,000 or more burdened on them by the time they're 25 or so," he says. "They frequently have credit cards ... and a monthly mobile phone account that must be paid for and managed."

The latest AMP.NATSEM (National Centre for Social and Economic Modelling) Income and Wealth Report that studies the spending and savings habits of generation Y found mortgages also figured heavily in the debt equation.

The report, released in August, shows 55 per cent of generation Y households have money owing on credit cards, with 37 per cent servicing a mortgage and 23 per cent still paying off a HECS debt.

A study by Roy Morgan, reported in The Sydney Morning Herald last week, shows those who had stretched themselves to buy a home owe, on average, more than $200,000, with many giving up on the dream of owning their own home.

Credit card debt is particularly worrying for this group. Gloria Kennedy, Monash University's Caulfield campus student financial adviser, says many encounter the problem at university.

"The worst debt we see is credit card debt. Often students are offered a limit that really is higher than should be offered with the income they're on and some students are inclined to max it out," she says.

Kennedy says she tries to teach the students how to use their credit cards prudently and suggests strategies to avoid using their cards and ways to consolidate their debt.

Monash University also offers students interest-free loans of up to $3000 that can be paid off over 12 months.

Kennedy feels students are better off making use of this facility rather than incurring credit card debt as the loans are tailored for their circumstances.

"We structure the repayments of the loans to suit students so they can pay off more during the semester break if they're working, and also they're not incurring the high interest they would be with a credit card, so they know all of their money is going towards what they are borrowing the money for rather than to bank fees and charges," she says.

The university also encourages students to tell them about financial difficulties they might have in repaying a loan, so an alternative arrangement can be made.

The Youth Affairs Council of Victoria also sees a lot of generation Y people struggling with debt. The two worst areas are credit card and mobile phone debt.

The organisation has released a series of financial information sheets called "Debt Sux" to help people take control of their finances.

It recommends strategies such as buying goods on lay-by rather than credit cards, which allows the consumer to pay for an item gradually without incurring interest.

When it comes to mobile phone debt, the council chief executive, Georgie Ferrari, says the most important thing is to understand the ramifications of signing a contract.

"The advice I'd give to young people is don't be afraid to ask questions and make sure you read the fine print and get independent advice as well if you're unsure of things," she says.

Ferrari says people should ask whether there is a cooling-off period in the contract in case they change their mind. The Debt Sux information series suggests a flat fee arrangement or a pre-paid contract as a means of limiting mobile phone costs and spending only what you have.

However, it is one thing to manage debt and and another to break free from it. So are there any strategies generation Y can use to break the debt cycle?

AMP financial planner Andrew Heaven says it is important to make a distinction between the types of debt. "There is good debt and bad debt and they've got to focus on minimising the bad debt and focus on maximising their savings capacity," he says.

Heaven describes bad debt as that which has been consumed without anything to show for it, such as a holiday or a depreciating asset that has a diminishing value, such as a motor vehicle.

Conversely a good debt is that which has been incurred investing in an appreciating asset, such as shares or property.

Laura Menschik, managing director of WLM Financial Services, says spending on items such as holidays, mobile phones and cars is a characteristic of youth that is difficult to change.

Her suggestion is to not necessarily cut out this type of spending but to try to apply common sense.

"For example with young men, if you're going to buy a car, get the cheapest car your ego can afford," she says.

Debt has not stopped generation Y from having medium to long-term investment aspirations. Most people in this age group still see owning their own home as a priority but many fear it is unobtainable.

The statistics reflect this concern with the Roy Morgan report showing only 13 per cent of gen Y have a home loan, down from 17 per cent of generation X.

And the AMP.NATSEM report reveals only 24 per cent have managed to save more than $10,000 for a home deposit.

Andrew Heaven believes gen Y people need to commit to becoming debt-free if they are serious about saving to own a home.

"You can't save and service debt at the same time," he says. "It's like being half-pregnant - you're either a saver or you're not."

Heaven says the best way for Gen Y to take charge of their finances is to set up a simple budget. In doing this, he says, people need to prioritise their consumption and assess their spending habits. It's also important to set goals that can be achieved over a realistic time frame. And he stresses that patience is an important ingredient.

"This is incremental change and a process that can make a change in your life over time. So don't be impatient around it," he says.

Laura Menschik advises that a budget should be devised in combination with a savings plan even if only modest amounts are being put aside. "Even if it's $5 or $10 a week ... Just to have that as a goal as something that they are looking to do is important," she says.

Menschik stresses that at the beginning it is more about developing a savings discipline than the actual amounts people are able to save.

Count Financial's technical services manager, Dean Bornor, agrees that Generation Y should start with a simple savings regime and suggests breaking the strategy down into basic components.

"We would try to put them into a program that starts off small and then increases. We would say, 'This year all we want you to do is save 1 per cent of your salary.' The following year we would do 2 per cent and then 3 per cent, so over the course of four or five years they build up a reasonable savings capacity," he says.

Generation Y often doesn't consider superannuation as a savings vehicle because retirement is so far away. However, Menschik feels super should be considered because of the associated incentives such as the Government's co-contribution scheme.

"If they're able to put in up to $1000 of their own money and their total income is under $58,980, they can get the Government to contribute $1500 and no one else is going to give that to them," she says. "It's a great way of saving and even if they can put in $200 or $500 and not the full $1000, [it] would still be fantastic for them over a period of time."

Negotiating the hurdles

Stephanie Giannetto, 24, is a production co-ordinator with a publishing house and is typical of generation Y. She is juggling debt on several fronts. She has a couple of credit cards, a car loan and escalating mobile phone costs. Her credit cards, which have limits of $5000 and $2800, are her greatest challenge. She pays more than the minimum monthly balance but feels she's never completely on top of the situation. "I go through periods where I will 'max out' one or the other, then I'll go through periods where I'll be really strict with myself and pay off half of the total balance and then end up repeating the whole process."

She feels the banks are not helping with their constant offers of more credit. "I asked to have my credit limit reduced and the bank told me they couldn't do it over the phone. So I asked if I could do it in a branch and they said, 'No, we have to send you a form to fill out and then you have to send it back to us,' so it was a much longer process. I feel they are doing that to make it more of a hassle for you to decrease your limit."

Mobile phones are another tricky area. She agreed to a plan that caps her usage at $49.95 a month but feels her service provider, like the banks, do little to help her cap her spending.

"They sign you up really quickly in the store and you don't have a chance to read over the contract. I found out a few days into the contract that it doesn't have live billing, so I can't call at any time to find out how much spend I have left before I reach my limit.

"I tried to cancel the contract because of this and they told me I couldn't get out of it. To me it seems like they don't want you to know how much you have spent because they want to bill you over and above your cap." If she goes over the cap she can face a bill of $300. Of all the debt she services Stephanie finds her car loan the easiest to manage. "With the car loan you are taking out a certain amount of dollars and you have to pay that off by an agreed sum every month. It's not like a credit card where you can be really good for a few months and then you reach another hurdle like having to pay for your car insurance and you find all your good work is undone."

Despite her debts, Stephanie's medium-term plan is to own her own place although she admits her greatest frustration is not being able to save sufficiently to get a deposit together.

"A lot of people I know who want to buy a property are finding it harder because they only have a single income. If I wasn't looking to buy with my partner I'd probably be looking at buying something with a family member ... but I wouldn't be considering it if I was on my own."

Manage your HECS and qualify for a discount

Many graduates start their working life with a debt. The Higher Education Contribution Scheme fees range between $20,000 and $30,000 for a four year degree.

Students can either pay upfront and get a 20 per cent discount or can defer it via the Higher Education Loan Program and pay it off progressively when they start working.

Dorian Richards, Macquarie University's welfare officer, says the upfront discount is worthwhile: "If you've got the resources, I'd say, why not."

UNSW's team leader for Commonwealth support and fees, Peter Secomb, says some students consider taking out a loan to get the discount. But he urges caution. "They'll still be paying interest on that loan whereas the debt that gets deferred to the Tax Office doesn't accumulate interest - it only ever goes up with the CPI so there's not a lot of reason to do it that way," he says.

People can still get a discount later if they defer their HECS by making extra voluntary payments of at least $500 over their compulsory repayment. The discount is 10 per cent of the voluntary payment so a $500 payment would reduce the outstanding debt by $550.

Secomb says this is the best way to manage a HECS debt as the person still qualifies for a discount but has also had the advantage of deferring their initial expense.

"Paying the debt when you're working is likely to hurt your bottom line a lot less than an upfront payment. It's a really good option to have for a lot of students who otherwise can't afford to pay the thousands of dollars it costs for the degree," he says.

It is possible to have the voluntary payment discount offset the CPI increases in the HELP debt but it would mean paying at least $2000 a year above the compulsory amount.

Matter of interest

Juggling several credit cards can get you into trouble.

Centric Wealth financial adviser Dean Easterby recommends scrapping credit cards altogether.

"The first port of call for a younger person looking to consolidate debt would be to apply for a personal loan from the bank," he says.

Easterby says a personal loan is better value as the interest is considerably lower than on a credit card and personal loans also have set repayment schedules.

Another plus is people can save on fees. The average credit card charges annual fees starting at $30 while personal loans have low or no fees.

If you can't switch to a personal loan, consider consolidating the debt into one low interest rate credit card and put a lid on your spending.

To compare products, rates and fees, see http://www.infochoice.com.au or www.cannex.com.au.