If you think that Millennials do not need credit card advice, you are mistaken. According to a study done by Bankrate, young adults continue to be wary of using credit. This is true even 7 years after the Great Recession happened. The survey revealed that while older Americans are confident in owning credit cards, only 33% of those between 18 to 29 years of age say that they own a card.
After the Great Recession, credit cards have been painted with a bad reputation. Despite the improving economy and job conditions, Millennials continue to shun the use of credit cards. Other demographics that feel the same way are those who earn less than $30,000 a year, did not go to college, or are Black or Hispanic. Those who own credit cards are those who earn more than $75,000 a year, Baby Boomers, college graduates, or those who identify themselves as Republicans.
If you think about it, this purchasing tool is wrongly blamed for the financial difficulties of Americans after the Great Recession. The hard reality is, our own financial choices landed us in the debt pit that we struggled hard to get out of. It is wrong to shun credit cards because it does help open financial opportunities. At least, this is true if we learn how to use it correctly.
So if Millennials continue to stay away from this purchasing tool, then it seems that they are in most need of credit card advice. There are several reasons why opting not to use a card is a financial mistake. It may be true that these cards will put you in danger of being debt – but only if you do not practice the right financial habits.
What Millennials should know about credit cards
It is not that bad. If there is one thing that you need to realize about this purchasing tool is that it can be a powerful agent to help you improve your financial behavior.
There are a couple of things that Millennials need to know about credit cards. Believe it or not, it has a lot of financial benefits. We can point out three that does not even cover the purchasing convenience that credit cards bring.
It can teach you how to use debt responsibly.
First of all, this is a great way to use debt responsibly. If you want to know if you are ready to borrow a bigger personal loan or even a home loan, you need to try borrowing through a credit card first. It is important to gauge how you will behave when you use someone else’s money to buy something. Will you be responsible in the way you pay your dues? Or will you feel addicted to using credit to make purchases? It is safer to see how you will react to the debt by using a credit card if you start using it for small purchases. If you do not overdo it, you can easily rebound from it. Of course, you have to learn the credit card rules that will help make you a responsible owner. In fact, a great credit card advice is to educate yourself about these rules so you can ensure that you will not fall into the debt trap.
It allows you to practice credit management.
As the use of this purchasing tool help you use debt responsibly, you are also able to practice credit management. How can you manage credit if you do not use it right? As mentioned, if you use your card responsibly and you know the credit card rules that will keep you from debt, you are halfway through your efforts to develop great credit management habits. Things like paying your dues on time, taking advantage of the grace period, and keeping your balance low – these are the important rules that you need to follow if you really want to use your card to your advantage. If you learn the right habits, you can be more confident in borrowing bigger amounts.
It can help you build a credit history.
Probably the most popular reason why you will benefit from a credit card is for your credit history. Even if you have student loans or a car loan, these will still make your credit history thin. You need to have enough records in your credit history. A great credit history will help you get a high credit score – which is a good thing if you want to get a mortgage to buy a home. You need to use credit repeatedly and the easiest way to do that is by using your credit card. You do not have to keep on applying to use credit. You only have to make sure you do not reach your credit limit – which is possible if you pay off your balance. As long as you use your credit card for purchases, you can build enough data in your credit history and that will lead you to have a high credit score. Here is a video that will give some credit card advice to help beef up your credit history.
Dangers of not using your credit cards wisely, and how to avoid them
Now that you know how credit cards can benefit your finances, you need to understand the dangers associated with it. Admittedly, using your cards can pose a danger to your finances. But thankfully, there are ways that you can protect yourself from falling into the dreaded debt pit.
Here are the dangers of using these cards and the appropriate credit card advice that will help you avoid them.
Developing an impulsive buying habit.
The first danger of using credit cards is to develop impulsive buying habits. An article published on NerdWallet discussed one study that revealed how some people tend to spend more when they use credit cards compared to cash. In fact, there is an average 40% increase in spending. A credit card gives you seemingly unlimited funds. This can be something that you can easily abuse. To avoid this, you have to make sure every credit card purchase is in your budget. That way, every purchase is within the limits of your monthly financial capabilities.
Drowning in the high-interest rates.
Another danger in using credit cards is the high-interest rate. Among the other debts, this is notorious for having the highest in the financial industry. That means it can increase your purchase significantly. You will be wasting a lot of money in the process. Thankfully, there is more than one credit card advice that will help you avoid this problem. The first is to learn how to negotiate. Some consumers are not aware of this but it is possible for them to call the creditor to get them to lower the interest rate. Just call them to say that you want to them to lower the rate – you can even say that if they do not agree, you will shift to a new card that offers lower rates. If you had exhibited good credit behavior, they will most likely want to keep you as a client. The second way that you can deal with this high-interest rate is to pay your dues within the grace period. If you pay it in full within that period, you do not have to worry about the interest rate.
Paying the minimum payment requirement.
According to an article published on Time.com, the average interest rate of a credit card is 15%. If you have $4,717 in your balance, the minimum payment will be $189. That would lead you to pay $22,869 if you continue to stick to the minimum. The best way to avoid this predicament is to pay more than the minimum. In fact, it may be better to just pay off the balance in full when the billing details arrive. This is why you need to plan every purchase in your budget. You need to keep yourself from having to carry over a balance. In case you want to use it for expensive purchases, make sure there is a 0% installment plan. This will keep your costs from bloating beyond your actual purchase.