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Why Gen-Z Needs to Stay Out of Credit Card Debt

In today’s world of digital finance, credit cards have become a staple in consumer spending. Whether it’s online shopping, paying bills or dining out, the convenience of credit cards is undeniable. However, with the rising interest rates and increasing consumer credit, the convenience comes with a hefty price – a growing pile of credit card debt.

The Growing Issue of Credit Card Debt

According to a recent report, credit card balances have seen their largest growth in over two decades. This is a clear indication of the struggle that people across demographics are facing in managing their debt. The problem is particularly severe among millennials and borrowers with auto loans or student debt.

“Credit card delinquencies are on the rise, especially among millennials and borrowers with auto or student loan debt.” – Federal Reserve Bank of New York

The Rising Tide of Delinquency

The report shows that credit card delinquencies – when a payment is 30 days or more overdue – have risen from 1.7% in the first half of the year to 2% in the third quarter. This upsurge is largely driven by millennials and those with auto and/or student loans. 

The Consequences of Carrying Credit Card Debt

Credit card debt can significantly impact your credit scores. When you carry a credit card balance, it can lead to a higher Debt-to-Income (DTI) ratio, which is a measure of your total monthly debt payments divided by your gross monthly income [2]. 

Lenders often use this ratio to assess your ability to manage monthly payments and repay borrowed money. If your DTI ratio exceeds a certain threshold, typically around 36%, lenders may perceive you as a higher risk, which can make it more challenging and potentially more expensive to borrow money for significant purchases like a house [2].

Another way credit card debt can affect your creditworthiness is through credit utilization, which is a measure of how much of your available credit is being used [2]. Experts recommend keeping credit utilization below 30% of your total available credit [2]. A high credit utilization ratio can negatively affect your credit score since it can indicate to lenders that you may be over-reliant on credit and may have difficulty paying off your debts. Even if your credit card offers an introductory 0% APR, carrying a balance can still impact your credit utilization [2].

Moreover, carrying a credit card balance can lead to higher interest payments [2]. This is due to compounding interest, a process where interest is added to the principal amount, and then future interest is calculated on this new total [3]. As such, the unpaid balance on your credit card can grow exponentially over time if not managed properly, leading to a larger debt burden and potentially impacting your overall financial health [3].

While credit card debt can be a useful tool when managed properly, it’s critical to understand the potential impacts on your credit scores and overall financial health. This includes the effects on your DTI ratio and credit utilization, the risks of higher interest payments, and the potential challenges when borrowing for significant purchases [1][2][3].


1. Is Carrying A Balance Always Bad For Your Credit Score
2.How carrying a balance can affect your credit
3.10.4 Credit Cards and Other Debt – College Success

The Impact of Interest Rates

The average credit card interest rate is currently sitting at a staggering 20%, a significant increase from just 14.5% in November of 2021. This surge in interest rates has made credit card debt management a daunting task for many. Some those do not even realize that more interest is being accrued against them

The Millennial Struggle with Credit Card Debt

The data reveals that millennials, defined by the New York Fed as individuals born between 1980 and 1994, are struggling more than others with credit card debt. Around 2.9% of millennial credit card holders transitioned into delinquency in the third quarter, a rate higher than their Gen-Z counterparts.

The Impact of Student Loans

The resumption of student loan payments after a three-year forbearance period has further complicated the debt management situation for many borrowers, leading to an increase in credit card balances and delinquencies.

The Auto Loan Factor

The rising costs of auto loans, due to increasing car prices and interest rates, have also contributed to the growing problem of credit card debt. The average payment for a new vehicle is now more than $700 a month, and the average auto loan interest rate for new vehicles was 7.4% in the third quarter. Also, people are accepting 84 month terms for their car payments. Extending their liability and putting their cash flows in others hands right when they earn it for a longer period of time.

Paying Off Credit Card Debt: Strategies and Solutions

There are several strategies for paying off credit card debt before it turns into a massive financial burden. These include debt settlement, credit counseling, and debt consolidation. We covered some of the debt paying strategies here, but we want to re-iterate the importance of managing debt on your path towards financial independence. 

Debt Settlement

This involves negotiating with your lender to agree to a lump-sum payment that is less than your outstanding balance. However, this approach comes with risks, such as potential damage to your credit score and additional fees if you choose to work with a third-party company.

Credit Counseling

If you need guidance in managing your debt, credit counseling might be a good option. Nonprofit organizations often provide this service, offering resources and education on debt management.

Debt Consolidation

By consolidating your debt, you can extend the repayment period without accruing as much interest. This could involve transferring your balance to a personal loan with a lower interest rate or a balance transfer credit card that offers a 0% APR period.

The Holiday Debt Dilemma

As we approach the holiday season, many Americans plan to dig themselves deeper into credit card debt. According to a survey by D.A. Davidson & Co., 40% of credit card owners currently have a higher balance than they did last year, and more than half do not typically pay off their credit card balances in full every month.


Credit card debt is a growing problem, particularly among millennials and those with auto and/or student loans. However, with careful planning and smart strategies, it is possible to manage and even eliminate this type of debt. As we navigate the complexities of personal finance, staying informed and seeking professional guidance can go a long way in ensuring financial health and stability.


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