One-Third of Gen Z Has Credit Card Debt: How It Could Impact Their Future Finances, According To Experts
Even though Gen Z has had less time to rack up debt than older generations, many young Americans have already found themselves in the hole. A recent GOBankingRates survey found that 33% of Americans ages 18 to 24 have credit card debt. Fortunately, the majority seem to have low balances, with 55% of Americans in this age group carrying less than $5,000 in non-mortgage debt. However, over a quarter (27%) carry between $5,000 and $20,000 in non-mortgage debt.
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Racking up credit card debt early on in their financial lives can have negative consequences for Gen Z. GOBankingRates spoke to financial experts about how debt now can spiral into larger problems later on — here are some of the top reasons why.
Credit Card Debt Becomes More Expensive the Longer You Carry It
Gen Z likely has less income than people with more time in the workforce, so it may take longer for them to pay off any existing credit card debt. Unfortunately for this generation, the longer it takes them to pay it off, the more expensive this debt becomes.
“Gen Z needs to understand that carrying credit card debt early on can lead to a lifetime of financial struggles,” said Trinity Owen, a certified financial education instructor and founder of The Pay at Home Parent. “One missed payment can lead to late fees and higher interest rates, making it even harder to pay off the debt. The longer they carry the debt, the more interest they will accrue, making it harder and harder to get ahead.”
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Credit Card Debt Can Make It a Challenge To Achieve Financial Independence
A recent study found that 54% of Gen Z does not consider themselves financially independent. It’s difficult to achieve financial independence when you have credit card debt hanging over your head.
Additionally, while the amount of credit card debt you have doesn’t directly affect credit score, credit utilization rates do — so if Gen Z has low credit limits and they are borrowing a high percentage of their total limit, this could ding their score. A low credit score can make it more difficult for Gen Z to achieve financial milestones down the line.
“It’s best to begin building credit during young adulthood because establishing good credit takes time,” said Mary Hines Droesch, head of consumer and small business products at Bank of America. “Being aware of how credit works and practicing good credit card habits can help pave the way for major purchases and life moments, since credit impacts future living arrangements, the ability to purchase a car and even employment opportunities.”
Tips for Gen Z To Pay Off Credit Card Debt
Because credit card debt can have long-spanning consequences, paying off this debt should be a priority for Gen Z. The first step for paying off credit card debt is to get a handle on how much money is coming in and how much is being spent every month. Next, look for ways to cut down on spending.
“My advice to Gen Z is to create a budget and stick to it,” Owen said. “Avoid making unnecessary purchases.”
Have a dedicated portion of your monthly budget that goes towards paying down credit card debt. Owen advises focusing on paying off the debt with the highest interest rate first.
“Another tip is to consider a balance transfer credit card with a lower interest rate,” Owen said. “It can drastically help reduce the amount of interest paid over time, allowing for a faster payoff.”
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Methodology: GOBankingRates surveyed 1,005 Americans ages 18 and older from across the country between Jan. 16 Jan. and 18, 2023, asking 20 different questions: (1) Do you currently have any form of an emergency fund?; (2) How much do you currently have put away for an emergency fund?; (3) If you faced an emergency (medical, housing, etc.) how would you have to pay for it?; (4) How much do you currently have saved for retirement?; (5) Do you have any of the following debt? (Select all that apply); (6) How much debt (student loans, medical, auto/personal loan, credit card, etc.) do you currently have? (NOT including mortgage); (7) If you have a significant other, how much do you argue about money concerns?; (8) Which money topics do you discuss with your children? (Select all that apply); (9) How often do you discuss personal finance issues with your family and/or friends?; (10)What are the chances, in an average month, of you and your family running out of money before you are paid next?; (11) What worries you most when it comes to your personal finances?; (12) Compared to pre-COVID (before March 2020) are you more or less confident in your personal finances?; (13) If you received an unexpected bonus of $5,000, what’s the first thing you would do with it?; (14) If you won the lottery ($100 million), which of the following would you do with the winnings? (Select all that apply); (15) Would you rather…ask a family or friend to borrow money or max out a credit card?; (16) What would you like to learn more about in order to improve your personal finances?; (17) Do you consider yourself a spender or a saver?; (18) Which categories do you believe you overspend on? (Select all that apply); (19) How much do you spend on self care monthly?; and (20) What is your top financial priority? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
This article originally appeared on GOBankingRates.com: One-Third of Gen Z Has Credit Card Debt: How It Could Impact Their Future Finances, According To Experts
