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Tackling your debts

Millennials relying on credit cards to pay essential bills

Posted 05 October 2016 by Christine Walsh

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Under 25s rely on credit cards for essential bills and socialising.

There are certain characteristics that might spring to mind when you think about millennials. In case you’re wondering, this term is used to describe people who are between the ages of 18 and 34 today. Social media, smart phones and being socially conscious, are all associated with this generation, for example. And now it seems credit card debts might need to be added to that list. 

According to new research for Totallymoney.com, a quarter of under 25s rely on credit cards to pay essential bills. Worryingly, they’re borrowing to pay utility bills, which are classed as priority payments. 16% have also resorted to borrowing to pay their rent, and a quarter have failed to pay the minimum monthly payments on their credit cards in the past year. 

Almost one-fifth of under 25s who applied for credit in the past twelve months were rejected, making them the most rejected of all age groups. In some cases, this is likely to be because they are first time borrowers and don’t have an established credit history.  

There’s also a tendency for this age group to rely on credit to pay for socialising as well, with over a third saying that they use a credit card to cover the cost of a meal out, or a night out with friends. 

What’s even more concerning is that some of these under 25s are not aware of exactly how much it’s costing them to borrow on their credit card. Over 50% are not sure of how much interest they are paying and only slightly less than this amount don’t know how much they would be charged if they go over their credit limit. Over a third don’t know the balance of their card. 

These stats can make for worrying reading. It seems there’s a lack of knowledge with some younger borrowers, and this could end up damaging their ability to afford everything they need and borrow in the future. 

 

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What are the consequences of missing payments?

If you don’t pay the minimum amount required each month (or you pay late), you will usually be charged penalty fees. If you miss three to six payments, you can end up defaulting on the account which will damage your credit file. 

Damage to your credit file will be visible to any company that credit checks you in the future, including other lenders and service providers (such as mobile phone firms and even insurance companies). So missing payments on your credit card can leave your credit file in a weaker position and mean that you may be rejected if you apply for credit, a mobile phone contract, or even try to pay monthly for your car insurance, for example. Or if you are approved for credit, it’s likely to be at a higher rate of interest. 

What should young people know about credit cards?

If you’ve got a credit card, it’s really important that you understand how to use it responsibly, to avoid financial problems further down the line. When you start using a card, find out exactly what rate of interest you’ll be paying and what your credit limit is. 

Find out what the minimum payment is each month and make sure you pay this back at the very least: you should be able to set up a Direct Debit to do so. If possible, try to organise the way you borrow on your credit card so that you can clear the outstanding amount at the end of each month. This way, you won’t be charged any interest on the money that you’ve borrowed. 

It’s also not a good idea to use your credit card in cash machines, as you may be charged for the withdrawal and interest is usually added straight away as well. 

Using a credit card for essentials

If you use your credit card to pay for essential costs, like food or your bills, you need a plan to pay this back and you also need to look at how you’re going to afford these bills next month, without using your credit card.

If you find that you’re relying on your credit card for essentials all the time, this is a sign that something is going wrong with your finances. This might be due to an issue with money-management, or because other debt repayments are starting to make it impossible to get by without resorting to credit.

Draw up a budget which shows your incomings and outgoing each month. From this, you should be able to see whether you’ve got enough money coming in to realistically cover all your repayments and essential costs, without having to rely on credit. 

Seek help if it’s becoming unmanageable

If you know that you don’t have enough to cover everything, there is help out there. Having debt you’re not sure how you’re going to pay back can be a scary situation, but there is always a way to deal with it – you just need the right advice. 

In some situations, you just need to chat it through with your lender. If there’s a reason why you can’t pay the money back when it’s due, they can sometimes give you some extra time to sort things out, known as a payment holiday. Freezing interest and charges for a time is another option they may look at to help you. 

You can also contact our advisors using the options at the bottom of this page. They are trained to solve debt problems and know which method is best in any given situation. It might be best for you to start a debt solution and if this is the case, they can advise you on the different ones available. 

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.