According to the New York Times, new data from the Federal Reserve shows that the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989. The report shows that while many Americans are reducing their credit card debt, no other age group has had as rapid decline in the proportion holding credit card debt.
Why Are Millennials Less Likely to Hold Credit Card Debt?
It seems Millennials are less likely to take on credit card debt after watching how indebtedness impacted their parents. Combined with already large student loan debt and a reduction in mortgage debt, Millennials have a different combination of debts than previous generations. Further, many recognize the credit card trap – making minimum monthly payments, but never seeing a reduced balance. Or, spending up to your limit, getting increased limits, and spending further. So, is avoiding credit card debt a bad thing?
Impact of Reduced Credit Card Debt on Millennials
While reducing exposure to credit card debt is clearly not a terrible thing, there are some potential unintended consequences that need to be considered. First, delaying opening a credit card account reduces the chances to learn how and when to responsibly use credit. More importantly, opening a credit card account early in life has long been one of the key ways to establish a solid credit history – important for building towards larger purchases financed by debt (such as a car or a home mortgage for instance).
Personal Loans – An Alternative to Credit Card Debt
While many are hesitant to open a credit card account for the reasons stated above, there are alternative forms of credit that both help establish a credit history while allowing the borrower to make purchases financed by debt. Personal loans are a great alternative in that they have fixed payments for a fixed term – allowing for easy budgeting while avoiding the minimum payment trap. With a personal loan, you can borrow exactly what you need – for instance, to purchase a large ticket household item or take a trip. You then make your regularly scheduled monthly payment for the term of the loan – typically anywhere from 12 to 48 months, and that is it. No revolving balances and no minimum monthly payment trap. As always, it remain critical to take out only the credit you need and make your scheduled payments on time to see the benefit on your credit score and your wallet.