How Credit Cards are Affecting Millennials in Ohio
Millennials are not the first generation to be saddled with student loan debt, but this financial burden is heavier now than ever before -- among Ohio millennials and their peers nationwide. Exacerbating this generational challenge are the increasing obligations caused by credit card usage. According to a report issued by Northwest Mutual, widespread dependence on credit cards -- many with interest rates in excess of 20 percent, far above those rates charged by college loans -- threatens to compromise the ability of young adults to secure home mortgages and auto financing in the future.
Surveying a broad cross-section of millennials, the study determined that one-fifth of them were unaware of the interest rates being applied to their outstanding balances. Additionally, researchers discovered that this same age group possessed up to four credit cards at once, often with balances on each one. Moreover, purchases range from staples like food to luxuries goods and services, e.g., vacations. Most millennials commenced the regular use of credit cards after receiving invitational applications in the mail. Millennials -- and the subsequent generation, Gen-Z -- are classified as those people born after 1980. Since the 1980s, interest rates declined to the exceptionally low levels of today. However, credit card interest is higher than house and car loans: lacking collateral, credit card default risk is higher.
High credit card balances hinder other aims and aspirations as well. Many delay marriages or put off having children due to crushing credit card debt. Others fall behind in terms of saving for retirement. Worse, those who get behind on payments can find themselves subject to penalties and finance charges that compound the amount owed and make further delinquency almost inevitable. It is little surprise, then, that credit cards top mortgages, auto loans and student loans as the dominant source of debt among Americans.
Bleak as the picture may be, however, all is not lost. In fact, millennials benefit from their youth if they act sooner rather than later. For example, those with multiple cards can apply for a consolidation loan, i.e., an installment loan that pays the balances off and leaves the borrower with a single payment at a lower interest rate. Alternatively, debtors can procure a new card that postpones interest charges for up to a year and a half. Transferring their balances to the interest-free card can help to pay down what is owed without the complication of even more interest due. Of course, paying more than the monthly minimum shortens the term of the debt.
A difficult choice, but sometimes the wisest, is to opt for bankruptcy declaration. Under Chapter 7, bankruptcy can be sought independent of the size of the debt or the debtor's solvency status. In many Chapter 7 cases, the debts are totally discharged in order to help the individual obtain a clean slate and a fresh start. The bankruptcy will appear on a credit report for 7-10 years. However, most individuals are able to re-establish a solid credit score within 2-3 years.