I just read a fascinating article in the recent New York Times “Your Money” section regarding millennials (ages 18 to 29) and credit cards.
According to a survey published by Bankrate.com, over 60% of millennials don’t have credit cards, almost double the rate of those over 30 years of age. The article goes on to cite reasons why, including a fear of college students that they may get into credit card debt along with the desire to avoid adding to their already-record amounts of student loan debt. And, of course, so many of them do not have solid employment, so they may have little ability to take on more debt.
So what are they missing? Are they on the right track?
Often when interviewing my clients who have debt problems, I listen to stories about their parents or grandparents who would never buy anything unless they had all of the money to pay at the time of purchase. A television? Here’s the money. A car? I’ll write a check. A house? I’ve been saving up this $20,000 for years, so here is the cash.
Is this realistic in this day and age? It depends. How do you want to live? Can you do without the 60-inch television? Is it necessary to buy a new car? Do you really need that $250,000 house? What is your income, and how secure is that job? And I know that your spouse is working, also, but will he or she be taking off a significant amount of time to raise your child or children?
I always tell my clients the truth: most of our bankruptcies are caused by a loss of a job or hours from a job, or by medical reasons, or by separation or divorce. But I also tell them that my observation over the 30-plus years that I have been doing this is that my clients tend to not prepare for these unfortunate circumstances. While not completely tapped out before the misfortune occurred, my clients generally have not saved much money, for all kinds of reasons.
So I totally understand the fear of the millennials of going into debt. But they also have to consider some of the advantages of credit cards before they reject them completely. The article points out that you need credit to get credit. While you may wish to buy that $25,000 car with cash, it may not be possible. And while ideally you would like to fork over $90,000 for that starter home, it is difficult to save that kind of money. Having established credit can help you get lower rates for financing these purchases, so your payments will be less.
Consider all factors before you make the decision to card or not to card. In the meantime, make all of your student loan and other payments on time to make certain there are no bad entries on your credit report. And if you do everything correctly, you’ll be calling Steidl and Steinberg for putting together your estate plan, or to appeal your property taxes assessment, instead of a bankruptcy.