A growing number of Americans are maxed out on credit cards, with Gen Z leading the way, The Washington Post reported, citing a new report from the Federal Reserve Bank of New York.
The New York Fed’s Quarterly Report on Household Debt and Credit for the first quarter of 2024 found that, while credit card balances fell by $14 billion, an increasing number of borrowers are behind on credit card payments. A significant proportion of those who are maxed out are members of Generation Z; 15.3 percent of Gen Z credit card users exceeded 90 percent of their credit limit, a percentage that denotes being maxed out, according to the New York Fed.
Comparable percentages were 12.1 percent for millennials, 9.6 percent for Gen X, and 4.8 percent for baby boomers. Gen Zers had a median balance of $760 and a median credit limit of $4,500.
There are two popular strategies for paying off debt, the Post advised.
One method, called a “debt avalanche,” involves organizing bills by interest,from the highest to the lowest. The debtor concentrates on paying the most expensive debt first, while making minimum payments on the other cards, then working down the list.
The other method involves listing all debts, starting with the one with the lowest balance and applying any extra money available to the first one, while making the minimum payments on the other cards or debts, then moving on to the others after the first one is completely paid off.
Debtors may seek help from a nonprofit credit counseling agency, which can be found through the National Foundation for Credit Counseling. Steer clear of debt settlement companies promising a quick fix, the Post advised.Such companies often require debtors to sign a contract obligating them to pay thousands of dollars to help settle their debt. That money could instead be used to reduce personal debt.
Debtors can also take advantage of card with a zero percent promotion rate, but the Post warned that higher rates may apply after the promotional period—typically15 to 21 months— if the balance is not paid off. Debtors who do not qualify for such an offer can call the lender and try to negotiate a lower rate.
Tapping retirement money to pay off debt is a last resort, the Post warned. In addition, taking out a home-equity loan or line of credit may be enticing, given that the interest rate is lower than that of credit cards, but it is still swapping one debt for another.
