I’m in credit card hell and can’t escape.
That’s the complaint of many Millennials, who are between the ages 22-38.
They didn’t learn the lessons of previous generations more likely to shun debt, card pros warn.
The Wrong Kind of Spending
Young cardholders, according to a report from CreditCards.com., often take card points on cash or in travel credits, putting themselves in danger of running up long-term debt.
“Signup bonuses of at least $500 in cash or $1,200 in travel credit are considered the most attractive feature for a credit card,” the report said.
However, older cardholders, added CreditCards.com analyst Ted Rossman, tend to use extra money to reduce often pricey card debt. For someone in card debt—no matter how small or large—that is usually the best way to spend extra money.
A Can’t Miss Investment
Why? I have a guaranteed successful investment for you: Pay down card debt.
This average card interest rate is between 17 percent and 25 percent. Remember the long-term return of the stock market is about nine and half percent, yet millions of Americans carry card debt.
So carrying this kind of debt, Rossman adds, often becomes a long-term problem, despite all the commonsense advice they hear that they are playing with fire.
Why do young cardholders fall into the card pit?
Let’s Take a Trip or Maybe Not
“Some of this is Millennials love travel and want instant gratification,” Rossman says.
Ironically, millions of young Americans won’t be experiencing that gratification this winter, according to a new report.
Wallethub, in a new survey, says 33 million Americans, many of them Millennials, are tapped out and won’t be taking a winter vacation.
“It should be no surprise that 33 million Americans say they can’t afford to travel this winter. Even though unemployment is near record lows and the stock market is near record highs, there are a lot of things weighing on consumers financially right now,” according to WalletHub CEO Odysseas Papadimitriou.
Are You a Card Pro or a Card Slave?
“Credit cards can be great, but you must know how to use them properly and the implications of what you are doing,” says Bill Hardekopf, founder of LowCards.com
The implication of not retiring balances is one often ends up in a debt spiral that goes on for years.
“The problem is there is a lack of awareness of how difficult card debt can be,” says Charles Hughes, a Long Island advisor.
Perpetual Debt
Hughes gave an example of what one doesn’t know about credit cards can hurt one.
Say you owe $5,700 in card debt at some 19 percent or so and only make minimum monthly payments. It takes that person 20 years to retire the debt, assuming you don’t add anything to it, Hughes notes.
In another CreditCards.com poll, 37 percent of credit card debtors have been in debt for at least two years, 23 percent for at least three years and 14 percent for at least five years. The study found some “can’t even remember how long they’ve been in debt.”
That’s a dangerous form of amnesia.
Remember the advice of GregoryBresiger.com that has been propounded in these pages endlessly: Be a credit card transactor, not a credit card revolver.
Bankruptcy or Prosperity?
A transactor pays off bills each month and pays a nice round interest rate number: zero percent. Zero. That is my favorite price.
A credit card revolver, which millions of Americans are and which require one pays somewhere on the order of 17 percent to 25 percent interest, is someone who, at any age, is digging his or her financial grave and may even be heading for bankruptcy.
