Millennials have the fastest growing debt load
Even before the pandemic, millennials — or Generation Y — lagged behind when it came to owning a home and amassing wealth, increasing their vulnerability to the economic downturn.
“Millennials are the most likely to have had their income compromised and least likely to have adequate emergency savings,” industry analyst Ted Rossman told USA Today. The group is more likely to prioritize paying off debt over saving, burdened by unwieldy student loans and rising living costs with fewer investments and houses to rent out or sell.
COVID-19 accelerated the shift to contactless payments across the board in 2020. Consumers became more leery of exchanging paper bills and coins with a virus on the loose, especially when swiping a card or tapping a watch against a terminal could suffice.
That doesn’t mean consumers have become more careful with their credit, however.
The CreditCards.com study, which was conducted right before the second stimulus deal was approved by Congress in December 2020, showed that over half of U.S. adults added to their credit card debt during the pandemic. Nearly two-thirds of credit card debtors in the poll said that if COVID-19 continued to surge, it would “affect their ability to make minimum credit card payments in the next three months.”
Millennials led the other generations in accruing the most credit card debt (56%), compared to 53% of Gen X and 46% of baby boomers.
Experian notes that millennials have the fastest growing debt load, and places the average credit card balance for a millennial at $4,651 and non-mortgage debt at over $27,000.
Millennials were shaken up by the financial crisis (again)
Millennials hold the dubious distinction of having experienced two different economic recessions.
NPR reported that a financial crisis can leave “scarring effects” on wages, especially for those who entered the workforce in the midst of the Great Recession — the lower the wages you start with, the lower your net worth will likely be in the future.
The country’s total credit card debt and delinquencies declined during the pandemic, according to the CreditCards.com study, however while higher-income professionals have saved money by working remotely, lower-income workers, particularly those in the service industry, are still struggling.
Those dependent on contract work face even less job security and often fewer benefits. Many are turning to side-gigs to support themselves because one job just isn’t enough.
The low income and high debt loop isn’t something you want to get stuck in. It can damage your credit history and hurt your chances to apply for things you really want later on, like a mortgage for your dream home, or a car loan.
Don’t let debt dent your credit score
Experian found that millennials actually improved their credit scores last year — with an average credit score of 658 compared to 2019’s score of 647 — however, lenders are tightening their standards.
In fact, nearly a third of millennials were rejected for credit in 2020, according to a Bankrate poll.
Monitor your credit score: Skipping your credit card payments hurts your credit score, which banks and lenders look at when you apply for credit cards and loans to determine whether you’re a reliable borrower.
Millennials grapple with lower-than-average credit scores. This means they can end up paying higher interest rates on loans and get lower credit card limits, since — generally — they are more likely to be considered risky borrowers.
It’s important to keep track of payments, review your recent financial history and check your credit score regularly.
Consider consildating your debt: You can apply for a debt consolidation loan, a low interest personal loan or a balance transfer credit card to help make your debt load more manageable through the pandemic as you wait for more relief from the government.
Make paying your student loans a little easier: If you’re still struggling to pay off student loans, you could potentially save thousands of dollars in interest by refinancing.
Use your skills or hobbies to supplement your income: It’s also a good idea to maximize your income, especially if you can capitalize on doing things that you love. You can create an account on Fiverr, an online marketplace for freelancers where you can make some extra money on your own schedule using skills you already have.