Credit cards can be trouble. Just ask any of the millions of consumers who find themselves deeply in debt. In most cases, a large credit card balance is part of their burden.
But plenty of financial advisors point out the advantages of paying for everything with a credit card instead of cash or a debit card. A credit card is more secure than a debit card and, if you have a card offering rewards based on purchases, you can rack up discounts on future purposes.
The problem occurs when the bill arrives and the consumer doesn't pay the entire balance. The unpaid balance gets rolled over to the next month's bill, which will be larger than the month's before. Pretty soon, the balance is out of control.
Do you lack self control?
“If you have personality traits like a tendency to lack self control, if you’re in the process of repairing your finances, or if you’re not ready for personal responsibility, avoid credit cards until you are mentally and emotionally prepared,” advise the personal finance experts at Forbes.
On the other hand, if you can keep careful track of what you have charged on your card and pay it off each month, a credit card can be a powerful and convenient money management tool. The key is knowing the limits of your financial self-discipline.
Unfortunately, too many consumers get into trouble when they use credit cards. An analysis of federal data by NerdWallet shows U.S. household credit card debt averaged over $15,000 last month. And it may surprise some to learn that older consumers are in much deeper than the youngest consumers.
A survey by online loan marketplace LendingTree found that the older your are, the more reliant you are likely to be on plastic. The survey finds both Gen Xers and Baby Boomers are more cash-strapped and debt-dependent than Millennials.
"The millennial generation seems to be more averse to debt as it relates to credit cards, which could be attributed to lasting scars from the financial crisis of 2007-08," said Doug Lebda, founder and CEO of LendingTree. "Older Americans are more reliant on credit cards to maintain their monthly expenses and cash flows when compared to younger generations. It will be interesting to see how this trend develops with the emergence and adoption of new payment methods."
In fact, Millennials are the least likely consumers to feel they even need a credit card. Just 29% believe credit cards are “pretty much required today.” Nearly as many said they “don't need one.” When asked to explain, they said “don't spend what you don't have.”
Millennials who have credit cards also appear to be the best at paying off the balance each month – good news for them but bad news for credit card companies, that depend on monthly interest charges.
The generation that was the worst at paying off credit card balances each month was Gen X. Only 42.12% paid the balance in full each month.
Gen Xers also have the highest percentage of respondents saying they only pay off the minimum balance each month – a sure-fire recipe for never getting out of debt.