Millennials are supposed to be the cautious generation where credit is concerned. Many were burned during the housing crisis and Great Recession and vowed not to be overextended with credit. However, evidence is growing that millennials are headed down the same dangerous credit path as previous generations.
While millennials do have lower average credit card balances, recent surveys have shown worrying credit trends among millennials – including increased credit utilization and a tendency to buy things just to chase rewards points.
A new CreditCards.com survey reinforces these trends. According to the survey, millennials are far more tempted by rewards than they are by 0% annual percentage rate (APR) deals. While 31% of respondents preferred 3% cash back and 28% preferred either a $500 cash sign-up bonus or a $1,200 airfare/hotel reward sign-up bonus, only 14% preferred 0% APR on purchases for eighteen months and only 11% preferred 0% APR on balance transfers for 21 months.
A preference for rewards makes sense – if you don't carry monthly balances. If you do, a 0% introductory APR and a low post-introductory APR is far more important. The preference for rewards over low APRs suggests that millennials are tempted to spend more than they can pay off just to get rewards, and thus likely to pay more in interest charges than they ever receive in rewards.
Recent Federal Reserve data suggests that's exactly what's happening to millennials. The New York Fed's Quarterly Report on Household Debt and Credit for Q1 2019 shows that millennials are transitioning into serious delinquency (having a bill that's overdue by more than ninety days) at more than twice the rate of most other generations.
Millennial credit card delinquencies alone topped 8% of overall balances – still below the double-digit rates of the loose credit days, but well above the post-housing crisis rates near 6% from 2012-2014. Millennial auto loan delinquencies follow a similar pattern.
Interest rate increases add to the millennial dilemma. The average APR for cash back and rewards cards is approximately 17.6% – well above the 14.71% average for low-interest cards. Run scenarios with an online interest calculator if you think three percentage points don't matter.
There is one bit of good news for millennials in the New York Fed Report. As a percent of balances, their student loan delinquency rates have generally been falling since 2016. Their approximately 7% default rate is around three to four percentage points below that of other generations.
You don't have to follow trends of irresponsible credit use, regardless of your generation. Let your budget be your guide. It's fine to maximize your credit card rewards within a budget, but you must avoid impulse buys beyond your budget and failure to keep an eye on spending. If you're running increasingly high monthly balances, you're headed in the wrong direction.
Keep your spending under control to keep credit balances low – if possible, don't charge any more than you can pay off at the end of each month. Pay off all bills at the end of each month and keep credit usage low – that will keep your credit score high and lower your interest payments. Check your credit score and credit report periodically to make sure identity thieves aren't sticking you with debt that isn't yours. Let MoneyTips protect your credit and your identity with a free trial.
If you let the shiny new credit card with its rewards programs tempt you into overspending, you'll probably end up wondering why your rewards were consumed by interest charges. Manage your credit and debt wisely, and you'll be a shining example to all generations – millennials included.
If you want more credit, check out our list of credit card offers.