What 20-Somethings Can Do About Credit Card Debt

By Beverly Harzog. Last updated 8 July 2014. 4 comments

You've probably seen the recent headlines that say young adults are going to be carrying credit card debt to their graves. This reaction is due to a study at Ohio State University that showed that people born between 1980 and 1984 have, on average, $5,689 more debt than their parents had when they were the same age. (See also: Arguing Over Money Drives Your Kids to Credit Card Debt)

To make matters worse, these young people have $8,156 more credit card debt than their grandparents had at the same stage in their lives.

OK, everyone breathe.

We've gone from the present to the grave pretty quickly here. This makes an assumption that today's young adults don't intend to make any changes in their lives that would reduce their debt. I don't think that's true for the majority.

I've been around a while, and I've never heard from so many young people who are making an effort to fix their financial futures. I see a smart, savvy group who want to attain financial freedom. So let's approach this problem from that perspective.

What You Can Do to Decrease Debt

The first suggestion from most experts is to take advantage of a balance transfer credit card. Well, that works really well if you have excellent credit. You can transfer your debt to a card that offers a zero percent intro rate and save a ton on interest expense.

But if you're young and in debt, you might not have excellent credit. So let's talk about the steps you can take if your credit is average or below. I think the most important thing to do is to educate yourself about personal finance.

It sounds so cliché, but stick with me a moment here. The more you understand personal finance, and especially credit, the better decisions you'll make when you think about buying something. Instead of automatically putting concert tickets on a credit card, for instance, you'll think about whether this purchase fits within your overall budget.

The more confident you become in your ability to make sound financial decisions, the more optimistic you'll feel about paying off your debt. And that's a good thing, because you need to feel optimistic to stick with the changes you'll have to make.

A Few Sacrifices Can Go a Long Way

When I was in my mid-to-late 20s, I got into debt because I spent more than I made. My only defense is that I had never had that much money before and, well, I got a little crazy and lightheaded with the power. And then when I used my credit cards for purchases, I failed to think about some important things, like compound interest.

It turned around for me when I started educating myself about credit and every personal finance topic I could get my hands on. And yes, personal sacrifices I made had a lot to do with turning things around. I set up a budget that only a miser could love.

If you can't qualify for a balance transfer card and you don't have time for a second job, then often, the solution has to be personal sacrifice. You give up the gym membership and run in your neighborhood instead. You give up a weekly movie with your friends or family and rent DVDs and make your own popcorn.

So cut back on expenses and throw every penny you've got at the debt. Pay more than the minimum. Slow and steady wins the race. Trust me on this. I worked hard on my debt for two years and finally got my life back.

Once your debt starts going down, your credit score might improve. At some point, your score might be high enough to qualify for a balance transfer card and you can pay off the rest of your debt without paying interest expense.

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

What If You Still Feel Like You're Drowning?

If your debt is so high that you can't make a huge dent in it within three years or so, you might want to talk with a credit counselor. I usually send folks to the National Foundation for Credit Counseling or to CredAbility.

Initially, you'll be able to talk with a counselor and get a feel for what your next steps should be. Don't be afraid to get help if you need it.

Breaking the Debt Cycle

So how did so many young adults get into this situation in the first place? There are certainly legitimate reasons beyond your control, such as prolonged unemployment or a health crisis.

But for many, debt happens because they don't have a solid foundation in how money, and especially credit, works. That's why I place so much emphasis on educating yourself about money management.

It would be awesome if we all learned money skills from our parents. But according to a 2010 survey by the National Foundation for Credit Counseling (NFCC), 41% said they learned about money from their parents. So the majority — 59% — hit adulthood without being taught about personal finance by their parents.

I really do think this is related to the debt that young adults carry. It's so much easier to go out in the world and stay debt-free when you have a solid foundation in personal finance.

You know, I talk about credit for a living, so my kids have been exposed to money talk since they were little. But I also made a point of talking about money because of my own experience with credit card debt. I wanted to spare them the horror of that situation.

If you have kids and you talk with them about the family budget, you're doing them a huge favor. It doesn't have to be anything formal. I like the "everyday living" approach. You explain money decisions you're making as it happens in life, like at the grocery store.

If you use a credit card to pay for groceries, for instance, explain that you still have to pay the bill later when the statement comes. I took the extra step of explaining what happens when you charge more than you can pay off at the end of the month. You know, I had a lot of personal experience with that!

And even if you think credit cards are evil, it's still your job to explain to your kids how they work. One day, they'll be alone in their own home and they'll get enticing offers in the mail. You want them to know enough about credit so they make smart decisions.

The point here is to break the credit card debt cycle within your own family. Knowledge isn't fool-proof, but there's plenty of evidence that financial literacy leads to smarter money-related decisions. So really, teaching your kids how to handle money — and credit — responsibly is one of the most valuable gifts you can give them.

Do you talk to your kids about money and credit? If so, please share your approach!

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viv @ blogs

Wow!
This is exactly what I say to my kids. I use to be quite tight on cash. If ever I could have got it earlier on in life as to what was meant by save for a rainy day without taking life for granted.

I also say to them, all I learnt from my parents was to spend. This was the worse thing. This is really what leads you to get into credit card debt.

You have to get kids started early in understanding how important it is to budget for things and not look towards credit.

Beverly Harzog's picture

Hi Viv -- I love your attitude. And I totally agree it's so important to teach them about money when they're young. It helps them develop good habits that, hopefully, keep them out of debt.

Guest's picture

59% is too high- we need to be more careful when educating the youth to how credit works both in the short and long term. It would be interesting to see what would happen if Gov't made it mandatory that part of social studies/business/math/homeroom/etc. class included a day or few days a year to educate on the topic of credit or personal finance. If youth aren't learning about it at home, they need to learn from someone/somewhere to be careful and not fall into large sums of debt too early in life. Great article Beverly!

Beverly Harzog's picture

Thanks! And I agree with you that kids need to take a class in personal finance. I'd love it if schools started requiring this. Credit card debt can ruin your life for many years.