Debt Advice for Millennials: The Baby Steps

The stats don’t lie: Millennials are more cautious of debt than previous generations. In fact, until recently, many millennials avoided using credit cards or other forms of debt.

It sounds nice on the surface. But believe it or not, properly managed debt can actually help millennials build their credit scores and make it easier for them to qualify for future financing.

A strong credit history and some healthy debt go together better than avocado on toast.

Start Building Your Credit History

Credit history is exactly what it sounds like: assessing your past record of making on-time payments and opening new credit lines. Of course, your history is limited if you’ve never taken out a loan or opened a credit card in the past. You can start building your credit with a private label credit card or a secured credit card featuring a low credit limit.

Secured cards are simple credit cards that:

• Require a deposit as collateral
• Accept applicants with imperfect (or very little) credit history
• Set a cap on spending
• Carve a path toward upgrading with the same issuer

If you already have a credit card, you can also use a reporting service to send your monthly rent and utility payments to the credit reporting companies to help show a credit history.

Understand the Different Types of Debt

You might think that having less debt might give you a stronger credit history, but this isn’t necessarily true. In general, it is a good idea to have multiple types of loans and credit to demonstrate a strong credit history.

For example, if you only have a credit card, your credit score might not be as high as having a credit mortgage or student loans. This shows lenders that you can manage different kinds of debt effectively.

What type of loans look best on your credit history? Here’s a breakdown from most influential to least:

1. Mortgages
2. Home Equity Line of Credit (HELOC)
3. Car loan
4. General purpose credit card
5. Personal loan
6. Private label credit card
7. Secured credit card

If you’re not quite ready for a mortgage yet, credit cards, including private label and secured cards, are a great place to start as you work your way up to getting larger loans. Just be sure to make your payments on time!

Managing Credit Card Debt

It’s always wise to pay off your full credit card balance each month. Yet, as many as a third of millennials don’t. Don’t fool yourself — that balance won’t simply fade into darkness. You’ll still have to pay interest on any amount left over.

Automatic payments can be extremely helpful to make payments on time. Whether it’s a credit card, a car loan or a student loan, nearly every lender can set you up with Autopay.

Long and short: Pay everything on time, every time.

Debt and Savings: Not an Oxymoron

Millennials know the importance of paying off their debt, but retirement can be altogether foreign. While some never plan to retire, up to a quarter of millennials have no savings at all. That spells big trouble beyond just the golden years. Think about emergencies or sudden, unexpected expenses.

Aim to have three months’ salary saved in an emergency fund. Some financial experts recommend putting aside 10% of your salary each month toward your savings. Maybe that’s not feasible for you right now, but it’s something worth building to. $1 is better than $0. And $10 is better than $1. You get the idea.⁵

Your Friend, Debt

Treated right, debt can be useful. So long as you pay your bills on time, build up your credit score and hang on to some savings, a little debt can help you work toward the next rung in your financial journey. Don’t take on any more than you can afford, and you’ll be thanking yourself by the time we’re writing articles about gen z finances.

If you are looking for an option to help manage your medical bills, consider financing through the CareCredit credit card. The CareCredit credit card is an easy way to pay for health and wellness care, and offers promotional financing options.* To apply, go to carecredit.com/apply.