Young Adults and Credit Card Debt

Young Adults and Credit Card Debt

By far and away the most common type of debt that we see is credit card debt. It seems that everyone has a credit card. Why is this? Certainly, the ease of applying for one is a major factor. There are also many things in life that seem to require a credit card. To top it off, we believe that young adults are especially targeted by credit card companies so that they may start a decades-long use of that credit card. The result of these marketing campaigns is to start young adults down a pathway of credit card debt.

Youth and Money

Teaching youth about money is no easy task and requires some effort over time. The concept of money can be quite mysterious to a young person. Where it comes from or how you acquire it can be quite perplexing. We believe that many youth are not taught how to use a credit card nor how to handle money.

Recently overheard downtown
Parent: We can’t keep spending like this. Where do you think money comes from?
Child: It comes from the ATM.

In addition, as every month goes by, there seems to be less and less use of paper money; Debit cards, credit cards, and soon a move to digital currency of some sort does not make it any easier to teach about money when you can’t even see it.

As a result, when youth become young adults, many will become easy targets of slick credit card marketing schemes.

Millennials in Debt

If you are a young adult and have credit card debt you are not alone. It does not take many spending choices that you wish that you could “do over” to create a credit card balance.

Or perhaps you have experienced a temporary job layoff or a complete job loss which has caused you to rely on your credit cards for daily living needs.

Before you know it, the minimum payment on a credit card can be larger than you think.

Worse than that, the high interest rates most credit cards charge will gobble up most of that minimum payment. That means the principal balance of your purchase will not be reduced by much if at all.

The interest rate that your credit card charges you makes a difference. Many credit cards can charge as much as 29% on unpaid balances. Understanding how high interest rates can prevent you from paying down your debt is important. Every time the interest rate goes up, as it has been lately, it can take you longer to pay off debt.

Sometimes, you can find some interest relief by applying for a low interest credit card. While this might provide some temporary interest relief, watch the fine print because quite often that reduced or low interest credit card is only applicable for a couple of months. After that, it is right back up to the high rate.

Unmanageable debt can happen to anyone, no matter what age you are.  High inflation rates are contributing to rising amounts of debt. This podcast talks about breaking the debt cycle for good.

Best Ways to Pay Off Credit Cards

If you find that you can’t make the balance on your credit cards go down there are several strategies to consider to increase your chances. This would include the following:

  • Firstly, stop using credit cards. This will prevent any new charges from increasing the balance. We are familiar with some people who have frozen their cards in a block of ice and put them in the freezer. Or perhaps cutting them up might be the right choice for you.
  • If you have multiple credit cards, consider directing your payments towards the card that has the lowest balance. By paying off a card in full there can be a sense of accomplishment plus you have one less email bill or envelope to deal with
  • Another possibility is to focus payments on the credit card that is charging the highest interest rate. This will help minimize the overall interest rate that you are being charged.
  • Apply for a line of credit and use the funds for a credit card consolidation. Usually, the interest rates charged on a line of credit is much lower than what is charged by a credit card. Therefore, your monthly payment should be much less and you will have only one payment to make.
  • Trying to obtain a debt consolidation loan is similar to the point above. The challenge can be to be able to qualify for the line of credit or credit card consolidation loan.

The best way to have no credit card balance is to be in the position to pay it off in full every month. Just making the minimum payment is designed to keep you paying interest forever.

If you have already tried some or all of the above ideas to reduce your debt load, and it is still not working, don’t lose hope!

A Stronger Solution

There are some powerful options made available by the Federal Government to give you relief. The most popular, non bank way, to consolidate credit cards in Canada is by filing a Consumer Proposal. This is a program that must be filed by a Licensed Insolvency Trustee (that’s us!).

A Consumer Proposal enables you to make an interest free offer to pay back a portion of your debt over time. The monthly payment is designed to fit your monthly budget so you can live normally.

Contact Us – We are Here to Help!

Too much debt can create all kinds of problems; from financial, to emotional, to relationships.

At Chase & Associates, we offer a free initial assessment where we will analyze your finances and provide you with information on what options are available to you. This appointment is confidential and non judgemental.

Filing a Consumer Proposal or a Bankruptcy in Canada is designed to provide the honest unfortunate person a fresh financial start. Contact us to set up your appointment today.

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.