While making the transition from teenager to adult has always been difficult, it could reasonably be argued that today’s younger generation — otherwise known as millennials — is facing considerably more difficult circumstances than their predecessors. Indeed, the job market is still tough, student loan debt is near all-time highs and the cost of living continues to increase throughout much of the nation.
Compounding this tough financial reality, say experts, is that many millennials are lacking a fundamental understanding of how to manage their money effectively and that this is particularly true in the case of credit cards.
Specifically, experts indicate that millennials are making several common mistakes regarding their credit cards and that these mistakes are doubly costly given that they are occurring during a time when they should be building credit.
In today’s post, we’ll start exploring some of these credit card mistakes and, more importantly, examine what these experts say young people can do to avoid making them.
Failing to understand key terms and basic concepts
A survey undertaken by the credit reporting giant Experian made the following findings:
- Nearly 33 percent of millennials did not know the spending limit on their credit card
- 30 percent of millennials had maxed out a credit card at one point
- Over 50 percent of millennials did not know the interest rate on their credit card
This is troubling, of course, given that maxing out a credit card can be quite detrimental to a person’s credit score, and that interest on credit card balances can accrue quite rapidly, making an already large debt that much bigger.
The good news is that there are a few simple steps millennials can take to help rectify this problem.
- Take the time to read through credit card statements, as they are required by law to set forth all of the aforementioned information — and more — in very clear terms.
- Avoid maxing out a credit card whenever possible as this can hurt your credit score and create very significant problems in the event you start to fall behind on payments.
- Attempt to pay off the entire credit card balance owed each month to avoid having to pay interest. If this is not possible, structure payments so that you will get to a place where you’re utilizing less than 25 percent of your available line of credit as soon as possible.
We’ll continue this discussion in our next post.
It’s important for people of all ages to understand that in the event credit card debt becomes entirely unmanageable, there are options available to stop the harassing communications from debtors and secure a fresh start.
To learn more about how filing for bankruptcy can help with insurmountable credit card debt, consider speaking with an experienced legal professional.