Digging Out of Holiday Debt was written by Marwan Noorani, Debt.com and was produced by Wealth of Geeks. It has been republished with permission.
Could Gen Z be on the precipice of mirroring Millennials’ financial woes during the Great Recession?
Now that the post-holiday bills have started creeping in, many people are quaking in their boots at the thought of hefty bills eating away at their bank account. The pandemic has been a harsh reminder of how fleeting financial security can be, especially for younger generations. In this coming-of-age story, we’ll look at how the pandemic has shaken things up for both Millennials and Gen Z.
The Pandemic Drives Credit Card Debt
Although new research shows that credit card debt did not hit the record highs experts in the U.S. originally predicted, this still didn’t stop most consumers from turning to credit cards. Since more than 50 million Americans found themselves out of work due to government-ordered shutdowns, it’s no surprise to see that Millennials and Gen Z were affected the most.
A nationwide survey of 1,000 Americans conducted by Debt.com and Florida Atlantic University’s Business and Economics Polling Initiative (FAU BEPI) shows that 55% of Americans under the age of 39 years old charged up large credit bills as a result of income loss. Millennials reported that 64.5% of their household lost all or some income, whereas Gen Z reported that 81% had lost income.
The Pandemics Lasting Impact
As if being hit by a pandemic during some of your most formative years wasn’t enough, 70% of Gen Z respondents said the pandemic was the reason they took on more credit card debt compared to 46% for Millennials. On top of this, 18-24-year-olds were 45% more likely to carry debt from month-to-month. In comparison, the various other age groups came in at just over 30% when it came to carrying monthly credit card debt.
Nearly one in three (30%) respondents said they were forced to temporarily stop making credit card payments during the pandemic. And younger adults experienced higher rates of income loss. To be more specific, nearly 6 in 10 Gen Z survey respondents had to stop making payments on their cards compared to 4 in 10 Millennials. This is a little alarming considering 39% of Americans carry at least some debt (between $1-$7,500), whereas almost 2 in 10 (19%) Americans carry between $8,000-$25,000 and 9% carry between $30,000-$50,000 from month-to-month.
This will definitely have a lasting impact on the lives of younger Americans, especially Gen Z. If people are temporarily stopping their credit card payments, they are definitely not saving for emergencies, never mind retirement. So, they will more than likely have to also delay retirement as a result of the lasting effects of the pandemic.
Need Help Digging Out
If you feel like your debt and interest rates have gotten out of hand, try calling your creditors to renegotiate your interest rates. If you’ve been able to keep up with your payments and haven’t missed any in the last twelve months, your creditors might be willing to reduce your rates.
Next, take the time to figure out how to use the avalanche method. This is when you pay off your highest interest card first. But be aware that if you’re on a tight budget this may not be the method for you. You can also look at the snowball method to pay off your debts.
The debt snowball method is a strategy where you pay off debt in order of smallest to largest, gaining momentum as you pay off each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment. If you’re having trouble figuring out where to start, reach out Debt.com for help.