Credit Advice For Millennials.

Dec 05

This isn’t meant to be a lecture to young people, particularly those in the generation tagged as “Millennials”. Though I’m older than you (50-ish), I don’t want to come across as though I’m talking down to you. Unlike most old farts, I don’t go on rants about “these kids today” and how they come up short compared to how we were at their age. I’m not putting you down for your spending habits, because you’re no different than those of “Generation X” or the Baby Boomers.

No, this is just a friendly piece of advice about credit. You can follow it if you choose, pay it lip service or just ignore it outright. As with any unsolicited advice, it’s up to you how you take it.

I have few regrets in my life, but getting a credit card – followed by lines of credit – are among them.

I understand the necessity of a credit card in today’s society. They make it easy to book reservations. Most online commerce is done with them. A strong credit history can help in getting loans for a car or a home. Unfortunately, it’s also easy to treat credit like a savings account, which is how I got myself deep into debt.

More trouble than they're worth.

More trouble than they’re worth.

Short of cash? No problem, put it on credit and pay it back later. Need money for a trip? Put it on credit. Need money to pay for schooling? Why not take out a line of credit. For nearly twenty years, that’s what my wife and I did.

I didn’t get my first credit card until I was thirty. Up to that point, I always saved my money for expensive purchases and paid cash for those items. The only exception was my car payments. I was in the military at the time and usually lived on base when I was single, then in married quarters, so I didn’t need a credit history to rent an apartment or a house.

When I got that first credit card, my intent was to use it only for emergencies, like a unforeseen car repair or for travelling. We planned to pay off  whatever we put on it at the end of each month. But as the saying goes, the road to hell is paved with good intentions.

We weren’t huge spenders, and we did try to pay down our debt. For most of the past twenty years we’ve only had one credit card, which I usually paid down whenever I got a tax refund,  a raise or an unexpected windfall. Unfortunately, within a couple of months we’d have that card nearly maxed again.

As I’d max out the card, my credit limit kept rising, thanks to my nearly annual reduction on my balance. Eventually it rose to $4,000.00, over four times its original limit, and our spending kept pace with it.

When my wife decided to pursue a hairdressing career, we took out a line of credit, as it was cheaper than trying to get a loan and quicker (we thought) to pay off. When she opened a salon, we took out another, larger line.

Before we knew it, we were nearly $45,000.00 in debt. We spent several years trying to pay it down, but the lowest it ever reached was $38K. Something always seemed to come up (like new shingles for our roof, or a new furnace) and we’d be forced to draw from our credit, driving it back over $40K again.

We finally decided to draw some of the equity out of our home to pay off the credit card and kill off the largest line of credit, leaving us with $15K to pay off. We’re hoping to have that done within the next couple of years. While I’m fortunate to have home equity to draw upon, it sickened me to do it. I felt frustrated for my inability to pay it down over the years, while at the same time kicking myself for treating credit like it was a savings account.

I’m luckier than most. There are thousands, perhaps millions, of North Americans carrying far more credit debt than I, who would swap places with me in a heartbeat.

What pissed me off was I spent years trying to pay off an ever-increasing debt load, money which could have been used for home improvements, my child’s university education, my investment portfolio, family vacations or savings for special purchases. Had I stuck with just the credit card, paid it off completely each month as I intended, I wouldn’t have wasted so much more money paying off years of credit debt.

We’ve since learnt our lesson. For the past two years we slashed our credit limit, and whatever we put on the card is paid off within a month. But it was a long, painful lesson.

My advice to Millennials is simply this: avoid credit debt like the plague. If you must have a credit card (again, I understand its necessity), pay off whatever you put on it within a month. Keep your credit limit low (I recommend between $1000.00 – $1,500.00). If you must get a line of credit, budget as much as possible above the minimum monthly payment in order to pay it off as quickly as possible.  Whatever you do, don’t treat it like a savings account.

Credit is like quicksand. If you’re not careful, it’ll trap you and drag you under.

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