Credit card debt and the millennial woman… two things that are often associated and should never be. Although it’s the comedic fodder of television, movies, books, and even the Sunday morning funny pages, women are capable of rational thought, financial management, and consumer accountability. It’s time to break up with debt altogether, and chip away at the negative association that credit card debt and the millennial woman are somehow happy bedfellows.
U.S. household consumer debt profile as of April 2014 – according to NerdWallet:
Average credit card debt: $15,191
Average mortgage debt: $154,365
Average student loan debt: $33,607
Let’s talk turkey, ladies. Credit card companies hate me because I am considered a “deadbeat” borrower which is actually what you want to be, too. They hate me because I pay off 100% of my credit card balance every single month, which means I get to accrue rewards for my spending but they don’t get to charge me any interest on the loan. So basically they end up paying ME for the privilege of loaning me money and they don’t ever make any money off of me (okay, not entirely true, since they get to charge a processing fee to the owner of the store every time I buy something, but that doesn’t come out of my pocket).
If you get a credit card and only pay the minimum balance each month, then credit card companies will LOVE you because they stand to make so much money off of you. Check the fine print. You are likely paying them anywhere from 15-30% interest on the money that they have loaned to you. Credit card companies deliberately set up your default payments to be lower because the less you pay back every month, the more interest they make off of you. A boss lady takes one look at their suggested minimum payment amount, has a good laugh, and writes a check for the entire balance instead.
And then she cashes in her credit card rewards for a free trip to the Italian Riviera.
Although they have been glamorized to Millennials, credit cards are not for everyone and they are certainly not a Girl Scout badge of adulthood. You don’t have to use credit cards just because you’re offered a line of credit — the truth is that you may not be ready for the responsibility of credit management. Do you currently have a budget written down somewhere that you review every few months? If you answered no, a credit card is probably not a good idea yet.
Once you have built a monthly budget for yourself and you want to take the plunge to start building credit (which you can later use to get bigger loans for say a car or home or your own business), there are only two ways to use credit cards: the RIGHT way and the WRONG way.
If you use credit cards the RIGHT way:
– Your credit score goes up, because credit card companies will report your responsible payment activity to the credit bureaus
– You get valuable perks like cash back, frequent flyer miles, or points accrual that you can then use for other purchases
– Many credit cards automatically include a variety of consumer protections such as rental car insurance, travel insurance and product warranties that can cover your purchase even after the manufacturer’s warranty expires
– Paying with a credit card makes it easier to avoid losses from fraud. When thieves use your debit card fraudulently, the stolen money goes missing from your account instantly and it can take awhile to get it sorted out. While the investigation is pending, you may still have bills to pay, or potential checks pending deposit. When thieves get ahold of your credit card details, you just notify your credit card company of the fraudulent activity and aren’t on the hook to pay for the transactions you didn’t make while the credit card company resolves the matter
– Having a line of credit available in the event of an emergency is helpful to your peace of mind. But remember, a new pair of designer shoes is not an emergency. If you can’t pay them off during the first billing cycle, then you shouldn’t buy them with your credit card, sorry!
If you use credit cards the WRONG way:
– You’ll be stuck paying down the high interest on your loans instead of spending money on things you really want or need
– Your credit score could become severely impaired if you fail to repay your credit card loans in a timely fashion, contributing to an overall negative credit history
– It will be harder to qualify for a home or car loan in the future
– Apartment communities may decline to rent to you
– Credit card companies will no longer extend you a line of credit
– You might end up paying more for car insurance or homeowner’s insurance because of your higher perceived risk (depends on the state of residence)