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Millennials and Credit Cards: Interview with Money Under 30 David Weliver

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Money Under 30 provides younger people the tools and info necessary to navigate the slings and arrows of financial decision making. David Weliver founded Money Under 30 in 2006 as a way to document his efforts to pay off $80,000 of debt and to provide a free resource to help young adults make financial decisions with confidence. WFUV's Frank Chaparro spoke with David about credit card use (or the lack thereof) among younger people.

FC: The impression I got from scanning your site is that you don’t want young people to think their 20s can be a throw away decade for their personal finances – is that correct?

DW: That is a good way to put it. I am 35 years old now and I’ve been doing the site for ten years. I started it when I was 25. And that’s exactly what I was feeling – that my 20s were wasted financially on paying back student loans, making my own credit mistakes, and getting into more debt. All of these goals that our parents and grandparents had in their 20s – buying a home, getting married, and starting a family don’t seem feasible for today’s younger people. We are trying to help shift the mindset of people under 30 to show [them] that they can enjoy their 20s and make economic choices that can help them achieve their personal financial goals.

FC: What financial mistakes have you made?

DW: I started using credit cards in college - way too early and I got into debt. It’s the classic credit card mistake. But years later after I learned that lesson they’ve become a regular part of my finances and I’ll never do that again. I learned the hard way. Now I use them to manage my spending and get rewards. It’s interesting because I wasn’t the only one – when I was in my 20s this was much more common. When I graduated from college a lot of people had credit card debt.

FC: According to the NYTimes people under 35 are carrying the least amount of credit card debt in over 30 years. Why do you think this is?

DW:A couple things happened. First, the Card Act came along and really cracked down on credit card companies and the way in which they marketed to college age students. Second, the Recession happened. What followed was a change in the way young people view credit cards. After the Recession everyone was like wow look what can happen. You can lose your job and be under water with debt.

FC: What are some of the drawbacks young people not using credit cards?

DW: Even during the Recession, I never went as far as saying never use a credit card. A conservative approach to your overall borrowing is smart and necessary. So don’t get an 84-month car loan, don’t get as much home as the bank will approve you for. But credit is a vital component of a healthy financial picture. Having it is the most important thing and what we are seeing now is people getting to 27, 28, 29, and 30 without any credit history because they never took on any debt. So they’re not able to get a mortgage. The pendulum has swung too far in the other direction, essentially.

FC: When people reach out to you for advise what do they tell you scares them about credit cards?

DW: They’re worried about spending more than they would otherwise. And in their mind one or two months of going over a little bit equals a debt that they’ll take years to pay off at high interest rates. And not all of that is unfounded. There are studies that there is less pain involved with using a credit card as opposed to cash or a debit card. But the majority of people are afraid that they’ll lose control.

FC: If a person has student loans, then do they need a credit card to build credit?

DW: For whatever reason the credit reporting system treats installment loans like a student loan and revolving lines of credit like a credit card somewhat distinctly and in order to build credit you need to have both. Whether that’s right or not I don’t know but that is the system. If you want to build credit its best to have one or two credit cards. Even if you rarely use them like if you buy a tank a gas a couple times a month and pay that off.

FC: Is using it a couple times a month really good enough?

DW: Absolutely. What the credit bureaus want to see is simply that you are making payments on time every time and that you are able to use the account without maxing it out. There’s a myth out there that you have to carry a balance – this is absolutely false. But you do want to use it so you have to make a payment. It doesn’t matter the amount. Your credit score will go up if you use it and pay it on time.

FC: Where’s a good place to start out?

DW: If you’re starting at a place with limited credit history. The easiest thing and probably the safest thing you can do is get something that is called a secured credit card. It works kind of like a debit card. You have to pay a security deposit to the bank which they put in a savings account – essentially they set it aside. This comes with a credit card that you can make charges to and pay off every month. But since you are limited to the amount you deposit in that savings account you can’t spend beyond your means. And if you can’t pay it off the bank has the money from your deposit.