Millennials Fear Credit–But Should They?

A recent report published by Credible showed 33% of Millennials fear credit card debt, which outweighed their fear of dying (20%), the threat of war (16.8%), not being able to retire (11%), and climate change (6%).

Fear was exactly what 20-year-old customer service representative Karly Martin described when asked about her attitudes towards credit cards. She said she does not have any cards because she is afraid of “not being able to pay the credit card company back on time” and getting stuck in debt.

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Since this group of consumers, aged 18 to 34, came of age during the financial crisis of 2007, it is no surprise they have this feeling. However, should they be so terrified of credit card debt?

Clair Ruckman, GenXer and former account representative at Discover, said these fears are not entirely unfounded. She said she watched Baby Boomers overuse revolving credit and end up paying high interest rates on card balances instead of saving for retirement.

Like Ms. Ruckman, many Millennials are also learning from their Boomer parents, and some are avoiding credit cards altogether. Liz Trares, a 30-year-old university tutor said her parents have “been warning her for years” about credit cards and said that, even with the airline rewards and other perks, she feels planning ahead for expenses is much smarter than charging purchases.

Britney Braswell, a 26-year-old contract specialist, said she only uses an American Express charge card to pay her gym membership each month. While she is not afraid of getting into debt because she is “super disciplined,” she makes sure to live within her means. “I don’t live lavishly. I shop on the clearance rack. I work two jobs and just try to stay on the straight and narrow!”

Unfortunately, Karly, Liz, and Britney may be in the minority, as many Millennials are going into debt. According to recent research from LendEDU, almost half (47.6%) of Millennials carry a balance on their credit card every month, and 36% have maxed out credit cards.

An 18-year-old student, who wishes to remain anonymous, says she has already maxed out her two credit cards and is having a tough time making even the minimum payments. She said that she is afraid she may have ruined her credit over a relatively small $850 credit limit.

“Buy now, pay later. That was always my motto when I first got the card. I didn’t have to worry about [how much money] was in my account if I used the credit card,” the woman said. She vowed that once she does pay off these two cards, she will stop using credit cards altogether. “They’re more trouble than they’re really worth, in my opinion,” she said.

This motto may be going a bit too far, though. There are benefits to credit cards, and if Millennials can use them responsibly, there is no reason to be afraid. Ms. Ruckman said fear is not necessary, simply “intelligent caution.” No matter the credit limit or interest rate, she said it is imperative to consider carefully whether you can afford an item before you purchase it. “If you charge $10,000, even at a 6% interest rate, you will be paying that balance for years.”

She warns against the “minimum payment” trap and says you should only charge what you can pay each month. That way, you will be building a positive credit history and reaping positive credit card rewards without sending yourself into a downward spiral into debt.

Finally, Ms. Ruckman said if you worry you cannot control yourself with a high credit limit, it is okay to call the card company and ask for a lower limit. Better that than end up with a mountain of debt it will take years to pay off.