Over half of Gen Z is only paying the minimum on credit card debt

00:00 Josh

More young adults are using credit cards as a financial cushion, it’s according to a new report by lending tree as American card holders see cost of living expenses accelerate faster amid the ripple effects of conflict in the Middle East. Yahoo Finance’s Kerry Hannon has been following the numbers. Carrie, great to see you. So let’s start with with one stat that jumps out. More than four in 10 Americans are only making minimum payments on their credit cards, and that actually jumps to 60% for Gen Z. What what is driving that, Carrie? Is that inflation? Is that cost of living pressures? Explain that.

00:46 Kerry

Yeah, uh Josh, absolutely. Those are the just as you nailed it. Those are the primary reasons why, you know, they’re just trying to get by, keep the lights on kind of thing. So, you know, it it is it is kind of dis, you know, disconcerting in a way because, you know, it is never a good idea to only just pay that minimum. Uh so that’s something that that is definitely a bad idea, but um economy is definitely pushing that ahead. But you know, Josh, there were several other things that came out of that, percolated up from that report as well that caught my eye. Um,

01:28 Kerry

six in 10 people believe, Americans who have credit cards believe that carrying that small balance on your credit card or a balance on your credit card is actually good for your credit score and and it’s not. It in fact it is not. Um, and so that’s something that really uh caught my eye as well. There’s also Gen Z. So these are the folks in their 20s, right? They’re not earning that much money. They may have uh be really actually having trouble getting a job right now. I mean there’s a lot going on in their world and 43% of Gen Z said that they think of having credit cards is like their emergency fund. So, you know, that’s usually something that’s a bit of a red flag as well. And and the other thing, Josh that that really um people need to pay attention to is is that lending Tree found that half of credit card holders have absolutely no idea what their interest rate is that they’re paying on these credit cards and and the truth of the matter is the older generations, the boomers are the worst. I mean, six and 10 boomers told the researchers that they don’t know what their interest rate they’re paying is. And I mean, let’s think about this. Last month, the average credit card interest rate was over 23%. I mean, that can really get you in a hole.

02:44 Josh

One other stat that I thought was interesting, Carrie, I just want to pull on. You mentioned this, but more than a quarter of Americans, more than a quarter, say they don’t need an emergency fund because they have a credit card. What do you make of that mindset?

03:02 Kerry

Yeah, my goodness. So, what I say about that, Josh, is they’re simply not able to save, right? They’re not able to carve out that little bit to sock away when most financial advisors said you should have around six months of living expenses set away in an emergency fund. That that’s pretty daunting, especially when you’re young. But nonetheless, this is um saying, hey, you know, I simply I’m just trying to make ends meet. I can’t possibly set any more aside in an emergency fund. So that’s why I just applied for this credit card.

03:32 Josh

Let’s say Carrie, you’re listening to this and you’re saying, you know what? I really do want to cut my credit card debt. What are some basic steps and strategies Carrie that you would suggest?

03:45 Kerry

Yeah, Josh, I think the the first thing you should do is if you really are only okay, so you can only get that minimum or a little more than a minimum. Um, but you are paying on time. You’re really good about making sure you make that payment on time. Pick up the phone and call, actually speak to a person in customer service and see if you can ask your credit card company to lower your interest rate. They do that. They do do that. But you need to show that you have really been a consistent payer and that sort of thing. That’s not going to necessarily solve your problem, but it certainly does help.

04:22 Kerry

The second thing you should do is there are a lot of these zero uh interest credit cards. So you do a balance transfer from a high interest card. These cards are available, they’re out there. Um, if you qualify for one, this can be a real game changer for people because you have about 21 months usually with no interest. There’s a small fee to make this transaction, like 3 to 5%. But this buys you some time while you can catch your breath and really start going after some of these um debts that you’ve built up on the credit cards. And the third thing, Josh, is to automate. I love automating for everything when you comes to money because if you can just automate that monthly payment with just at least a notch above that minimum, you can really start paying down the debt. And those are classic great ways to go about it. If you’re really stuck, you know, definitely consider talking to a nonprofit credit counselor who they can help you um map out a way to start chopping away at this debt and they can often deal directly with the uh credit card company to lower that interest rate for you. Now, there are certain fees around that as well, but it’s another way to go about it.

05:46 Josh

Before you even get yourself into trouble, Carrie, are there any just sort of common sense, you know, simple rules of thumb when it comes to credit cards that you would offer folks? Something simple?

05:58 Kerry

Yeah, I mean, I guess Josh, I have nothing against credit cards. I I use them quite a bit myself, but I pay them in full every month. And and so I’m pretty careful about knowing if I’m charging something that yes, in fact, I’m going to be able to cover that balance at the end of the month. So that’s the most important thing is really understand your budget and what you have coming in each month and what is truly realistic for you in terms of charging.

06:27 Josh

Kerry, as always, great to see you. Thank you.

06:29 Kerry

Thanks.