Young people avoiding credit, but maybe not for the best
Perhaps the most notable recession-era change is evidenced by data showing that today's young people are using much less credit than previous generations.
September 11, 2013 /24-7PressRelease/ -- Young people avoiding credit, but maybe not for the best
Article provided by Durand & Associates, P.C.
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The Great Recession has worn hard on Americans of all demographics. However, for younger people, the economic turmoil over the last several years has been much more than a temporary setback. It has instead been a driving force that shapes how they approach career, family and daily financial matters.
Perhaps the most notable change is evidenced by data showing that today's young people are using much less credit than previous generations. Of course, part of this comes from the fact that many young people haven't been able to find the kinds of career-track jobs that would allow them to afford to finance major purchases like a house or a car. But, a big part of it appears to be a generational aversion to the credit card use that led so many others into bankruptcy and financial distress.
According to a recent Pew study, in 2010 only 39 percent of households under age 35 carried a credit card balance. By contrast, 48 percent of households under age 35 did so in 2007. The average balance was lower, too -- $2,100 in 2007 compared with $1,700 in 2010. Many others have opted to eschew credit altogether in favor of a cash-only lifestyle.
Responsible credit better than no credit
While a credit-free financial plan can stave off a lot of short-term problems, it can ultimately lead to long-term difficulties. An established credit history is a necessary prerequisite for home mortgages, small business loans and other types of borrowing. Getting a good rate on these loans can add up to thousands of dollars of savings over the long term.
Since payment history is the biggest factor influencing a person's credit score, getting a credit card and using in responsibly can go a long way toward establishing a reputable credit history. Young people who are considering getting their first credit card would be wise to keep the following tips in mind:
-Read the fine print: Before making any charges, make sure you understand exactly how your credit card works. Make sure you understand how your interest rate could change, and what happens if you make a late payment.
-Pay your bill on time: There is more than a late fee at risk -- every late payment impacts your credit score, and could increase your interest rate.
-Watch your balance: A low balance (compared to your credit limit) is best for your credit score. Ideally, you should just be charging small expenses and paying off the bill every month. If you have to charge a big expense, make an intentional plan to pay it off.
-Don't stick to the minimum: The minimum payment amount is designed to profit the credit card company by keeping you in debt. Your charges will only get more expensive the longer you have them, so pay as much as you can each month.
Sticking to these tips will help young people use debt responsibly while avoiding the pitfalls that hurt so many during the Great Recession. If trouble does occur, though, it is important to confront it head on. An experienced bankruptcy attorney can review the situation and advise on the best path for moving forward.
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