Money at 30: Why Millennials Should Stop Shunning Credit Cards
Apparently many in my generation — albeit a bit younger than I am — are ditching credit cards. That’s the conclusion Fortune came to based on data that finds only one-third of Millennials utilize credit cards, the majority of 18 to 24-year-olds preferring to pay in cash, with prepaid or debit cards proving popular with that demographic as well. Naturally one explanation for this reality is that many Millennials have significant student debts their working to pay off, making them averse to taking on more debt.
While the dangers of credit cards are obvious and well-documented, they also offer a number of benefits. I know this because I too have only come around on credit cards fairly recently. As Cat Stevens once sang, “I was once like you are now and I know that it’s not easy” — so, fellow Millennials, let me explain why you should stop shunning credit cards.
Credit cards aren’t the only way to build credit but they are a major factor. As a result, swearing off them like I once did can have a negative effect on your scores, which in turn can lead to you paying more for things like car loans and mortgages. That’s why it’s worth considering applying for a credit card and using it regularly. This doesn’t mean you need to spend a tremendous amount each month, but building up some positive payment history can go a long way to raising your credit scores.
As mentioned, studies have found that younger Millennials tend to utilize prepaid cards or debit card. Unfortunately, while those options may function similarly to credit cards in terms of completing transactions, neither will help in the way of building credit. Therefore, if you’re concerned about the temptation of credit cards, perhaps you could try a secured card that will require you to place a deposit but will help you grow your credit along the way.
Once you get your credit scores up to a respectable level, you may start qualifying for a better kind of card. Rewards credit cards come in many forms but typically offer users either direct cash back on purchases or points/miles that can be redeemed for various things including commercial flights. While some top-tier reward cards might charge an annual fee for the privilege of using them, others are completely free to use and can reward you handsomely.
The first credit card I applied for upon returning to the world of revolving credit was the Discover It card, which offers a standard 1% cash back on purchases as well as a revolving 5% on specific categories and a cash back match offer after your first year. However I’ve also recently added the Uber Visa card to my wallet because it boasts 4% cash back from restaurants, 3% from hotels and airlines, 2% on online purchases, and 1% back on everything else. Between those two cards alone, I’ve amassed more than $500 in rewards in the past year — all without paying as much as a cent in interest as I’ve paid off my balance in full each month (neither card charges an annual fee either). Needless to say, I only wish I had reassessed my “no credit cards” position sooner.
Gaming third-party offerings
Admittedly I only choose the word “gaming” here to complete the pattern but, when it comes to certain third party cashback offering, it can sometimes feel like you really are gaming the system. As I’ve written about previously, one of my favorite apps is Dosh, which allow you to link your various cards and earn cash back from select retailers. These earnings come in addition to any cash back or points your credit card itself offers you, making it a great twofer.
Similar services include Ebates, Mogl, and others. Additionally it’s worth exploring your credit card issuers website to see if they offer any kind of special offers. As much as regular credit card rewards can help add some extra cash to your pocket, bringing these apps and offers into the mix can put it those earnings over the top.
I understand firsthand that, as a 20-something, credit cards can seem like a really bad idea. And, to be sure, racking up credit card debt can be both expensive and detrimental to your credit scores. That said, forgoing credit cards entirely is a mistake that Millennials like myself should work to avoid. Afterall, from building credit to earning rewards, credit cards can actually have some major benefits it would be foolish to pass up forever.