June 21, 2024

Why Gen Z’s Credit Card Balances Are Climbing Faster Than Ever

Let’s talk about money. Specifically, credit card debt and the generation carrying the heaviest load right now: Gen Z. Younger Americans today are starting out with more debt than any previous generation. From student loans to auto loans, this debt is piling up quickly, and credit card balances are no exception. Gen Z, those born between 1997 and 2012, are entering adulthood carrying significant financial burdens. Recent statistics highlight that as of 2024, the average Gen Z credit card borrower holds a balance nearing $2,800. This rise in credit card debt among Gen Z is alarming and requires attention to know what’s causing it and how it can be curtailed.

The Elephant in the Room: The Rising Cost of Living

As we all know, the cost of living is skyrocketing, and it’s affecting everyone. As you can probably assume, it’ll affect people on the lower end of the income ranking, hence why younger people are struggling today. Everything from groceries to gasoline, rent to vehicles — prices are climbing. Even day-to-day expenses are becoming harder to manage without incurring debt. Coupled with stagnant wages, young adults are forced to rely on credit cards to bridge the gap between their income and their needs.

Consider housing costs. Rent prices have surged over the past decade, making it nearly impossible for many young adults to save for a down payment on a home. Young people are less likely to purchase homes, with more of a focus on moving long distances and not staying in one spot for a lengthy period of time. That said, the difficulty of purchasing a home is also contributing to younger people looking toward a more flexible living situation. Transportation costs have also risen, with car prices and maintenance expenses growing steadily. These unavoidable expenses leave little room for error, leading many to turn to credit cards just to get by.

How Lower Credit Limits Are Playing a Role

While Gen Z moves rapidly through life stages like education, employment, and independence, credit card companies aren’t keeping pace. Young consumers often receive lower credit limits compared to older generations, limiting their borrowing power. This can be particularly troublesome when unexpected expenses arise, forcing them to max out their cards quickly and have a higher debt-to-credit ratio.

Higher utilization rates can and will negatively impact credit scores, affecting what younger people can purchase. This cycle makes it difficult for young people to improve their financial standing and secure better credit terms in the future. It’s a frustrating reality that adds to the financial challenges already faced by Gen Z.

It’s Not Just Younger Users Finding Themselves With Maxed-Out Cards

Credit card debt isn’t solely a Gen Z problem; it’s an issue that spans all age groups. Older generations, including Millennials and Gen Xers, are also grappling with high levels of credit card debt. In fact, Gen X has the highest balance out of all generations, and with credit card balances hitting a record 1 trillion in 2023, there’s clearly a bigger issue impacting more than just one generation. Many individuals find themselves maxing out their cards due to unexpected medical bills, job loss, or other emergencies. This widespread issue highlights the broader systemic financial challenges faced by Americans today.

How Millennials and Other Generations Spending Habits Differ From Gen Z

Millennials came of age during the Great Recession, which significantly influenced their financial behavior. Many Millennials experienced job losses, wage stagnation, and a challenging job market early in their careers. As a result, they tend to be more cautious with their finances. This generation is known for prioritizing savings, avoiding unnecessary debt, and being more skeptical of credit card usage.

Gen Xers value financial stability and are focused on saving for retirement, but they also carry high levels of credit card debt. This generation tends to use credit cards to manage everyday expenses, emergencies, and major purchases, reflecting their need to juggle multiple financial obligations simultaneously.

Baby Boomers and the Silent Generation are either approaching retirement or already retired. Their spending habits have evolved over time. As they near retirement, there is a shift towards reducing debt and managing fixed incomes. The financial focus for these generations now includes paying off mortgages, minimizing credit card balances, and ensuring they have sufficient savings for healthcare.

While Millennials and Gen Xers balance caution with necessity, Baby Boomers and the Silent Generation focus on debt reduction and financial stability. Meanwhile, Gen Z navigates a complex environment of rising costs and technological convenience, leading to different challenges in managing credit card debt.

So How Can Gen Z — And Others — Get Out and Stay Out of Debt?

As much as Gen Z and others may not like it, this is the reality. However, there are ways to deal with debt and maintain good credit while still funding the life you want to live. Here are some practical steps:

  • Create a Budget: Track your income and expenses to identify areas where you can cut back.
  • Prioritize Debt Repayment: Focus on paying off high-interest debt first to reduce overall interest payments.
  • Build an Emergency Fund: Save a small amount each month to cover unexpected expenses, reducing reliance on credit cards.
  • Use Credit Wisely: Limit credit card use to essential purchases and pay off the balance in full each month if possible.
  • Seek Professional Help: Consider financial counseling or debt management programs for personalized advice and support.

Reach Out to McCarthy Law for Help

If you’re struggling with credit card debt, give McCarthy Law a call. We provide support for managing credit card debt, help you deal with credit card lawsuits, offer free analysis of your credit reports, and share invaluable information for both Gen Z and older generations alike. Don’t hesitate to reach out — we’re here to help you achieve financial stability and peace of mind.

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