In a world where inflation and a high cost of living are stressing many Americans’ budgets, the temptation is high to turn to credit cards to manage purchases. Unfortunately, that means that credit card debt is high, as well.
Delinquencies — or accounts with missed payments — are on the rise, according to data from the Federal Reserve Bank of New York’s Center for Microeconomic Data. The agency’s Quarterly Report on Household Debt and Credit, most recently released in November 2024, shows an uptick in missed credit card payments. Younger generations seem to be facing a heavier toll, with a higher portion of Gen Z cardholders having maxed out balances than other age groups.
“The sad reality is that life was more affordable for Boomers and Gen X, including things like the cost of education and housing,” says Bobbi Rebell, certified financial planner and financial expert. “In recent years, we have been facing high inflation, and for many Americans wages aren’t getting much higher and certainly have not kept up with inflation. As a result, the younger generation has more student debt and are also facing rising credit card debt.”
High costs are unlikely to go away anytime soon, so Gen Z credit card holders facing debt and delinquent accounts will need to be proactive to get their credit back on track.
Younger Generations More Likely to Have Maxed-Out Cards
The New York Fed’s study found younger cardholders — especially Gen Z — were much more likely to have maxed-out credit card balances and delinquent accounts. Credit card holders aged 18 to 29 had the highest percentage of accounts transitioning into delinquency during the last quarter, at more than 10%. Cardholders 30 to 39 were the next-highest group, at about 9% of borrowers transitioning into delinquency.
The economic landscape for young Americans likely plays a role in these trends. “The high cost of living and inflation is a growing concern that makes this generation especially vulnerable to facing challenges of managing their credit card debt, including sometimes getting hit with late fees and carrying high balances,” Rebell says.
Additionally, younger spenders might have different attitudes around money than their older counterparts — which can lead to risky financial decisions. “The emphasis on experiences can at times lead to splurging on things like vacations and pricey travel adventures that can get thrown on credit cards and lead to maxed-out balances,” Rebell says. “Add to that the influence of social media and the unrealistic lifestyle expectations, and it can be a recipe for financial chaos.”
[Read: Best Debt Consolidation Loans.]
How to Manage Credit Card Debt
If you are one of the many Americans struggling with credit card debt, there are steps you can take to ensure you do not fall behind on your monthly payments and to avoid the effects of delinquency on your credit score. Andrea Woroch, a money-saving expert and former U.S. News contributor, offers these steps to help young cardholders get their finances back on track:
— Stick to a budget. “Many people get into a poor financial cycle of lifestyle inflation, which means they take on bigger expenses and spend more when they make more,” Woroch says. “This takes away from the opportunity to build savings, invest and grow your wealth, so it’s important to assess expenses and follow a detailed budget to ensure you’re not wasting money on frivolous purchases or monthly bills.”
— Prioritize credit card debt payments. Because interest rates on credit cards are so high, carrying a balance on your card can lead to a cycle of debt that is hard to get out of. “Paying interest fees is just a pure waste of money, and that cash could go far in growing your wealth through money-making investments instead,” says Woroch. “Therefore, it’s imperative that you focus on paying off this debt as fast as possible.”
— Consider debt consolidation. If you are having trouble getting out from under credit card debt, there are options to consolidate your debts and reduce interest charges, including balance transfer cards and debt consolidation loans. According to Woroch, the interest you can save by taking advantage of these options is significant, and that money can be reinvested into your budget to add flexibility.
— Be aware of impulse purchases. The temptation to spend is everywhere, with social media playing a role in convincing younger cardholders to spend money they don’t have. Woroch warns that small impulse purchases can have a large impact on your ability to reach other financial goals, so finding ways to tame that kind of spending is critical.
[Read: Best Balance Transfer Cards]
Maxed-out cards and delinquent accounts can severely harm your credit score, limiting your access to other financial products. But with the right financial habits, young credit card users can work to reduce their balances, lessening the chance they cannot pay back what they owe.
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Gen Z Severely Delinquent on Credit Card Debt originally appeared on usnews.com
