How young adults can use credit safely


One of the first lessons of young adulthood: it's much easier to get into debt than get out of it.

"I definitely went on some shopping sprees with that," says Lynn Varra. Varra started working when she was 15. Within a few years her part-time job turned into an exercise in full time spending.

"$20 shirts, $20 dresses ... You can really hit $500 easily," she recalls.

Fortunately, she had some guidance to keep her from falling too deeply in debt. "My Dad always said not to pay the minimum. You're going to pay that credit card forever if you pay the minimum," Varra says.

Paying more than just the minimum balance is only part of the story. Debt counselors say young adults have special challenges when it comes to managing large amounts of red ink. "One of the main pitfalls of young adults is that they like to use credit cards," says Argelis Sanchez, a financial counselor at GreenPath Debt Solutions. "Instant gratification is something that you see from young adults. Because they haven't established a credit history, most of the time the credit cards they're getting have high interest rates. So it could be very difficult in order to pay back the debt."

Consolidate debt
If you've already accumulated debt from several cards, your best bet may be to consolidate it. You likely won't qualify for a bank consolidation loan. But you can simulate one with a balance transfer card.

It's a great idea, if you follow a debt-savvy strategy. First of all, you can't use a low-rate card to pay off the balance of another card at the same bank. So keep that in mind before you apply for a new card. Look for a card with both a low-interest rate and low or no balance transfer fee.

Once you get the new card, be disciplined. Use it only to pay off your debt. If you are tempted to use it for more purchases, cut the actual card in half and shred it after you do the balance transfer.

Have a plan. If you transfer $3,600 to a card offering no interest for one year, make 12 equal payments of $300 -- but make sure that final payment is credited to your account before the low rate expires. Even better: finish your payments a month or two early.

Better yet, avoid debt
When it comes to credit card debt, the best strategy is to avoid it. How? By paying off your balance every month.

"I never just pay the minimum. We pay the full bill," says Dave Mann, a young credit card user.

"I feel like we have the self-control to check and monitor what we're spending, and that we're only spending what we can afford to pay," says Dan Shapiro.

Solid strategies like these will help younger people not only use credit cards, but use them wisely.

See related: Don't just transfer a balance, pay it down, Move beyond the starter card with a personal loan, Getting teens to see plastic cards aren't 'invisible money'

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Updated: 03-21-2019