Millennials are on track to become the most educated generation in history, but they also have the debt to show for it. In 2018, nearly 70% of all college students had to take out student loans to pay for their education, with the average college student graduating with almost $30,000 worth of student loan debt. In spite of that, however, student loan debt may not be what millennials actually struggle with the most. Credit card debt may be a much bigger concern than student loan debt. Here are three reasons millennials struggle more with credit card debt than student loan debt.
1. Higher interest rates
On average, the interest rate for student loans remains under 10%. In addition, the interest rate is generally compounded monthly, rather than daily. As new adults, credit card companies often prey upon students that do not yet have the financial savvy to understand the difference between the high-interest rates charged by credit cards and those of student loans. Many students are offered credit cards while they are in school, which they readily sign up for to help make ends meet. By the time they leave school, they may already have a few thousand dollars in credit card debt on top of their student loan debt. Many student loans don’t even start gaining interest until they leave school, but credit card interest starts accruing the minute you make a purchase. Unlike student loans, credit card interest can be as high as 30%, particularly for students that do not yet have an established credit history.
2. Once they leave school, they don’t qualify for student loans, but they do qualify for credit cards
Even with a college degree, the positions that most students qualify for are still considered entry-level and have a salary to match. Even though student loan payments are generally structured based on income (payments are lower when a graduate’s income is lower and then increase as their income increases) many new graduates still struggle to make ends meet on their entry-level salaries. As a result, they may end up racking up even more debt on their credit cards. If they make their minimum payments each month, their credit score may even improve, giving them even more access to credit and more debt.
3. Student loan payments can be put on hold, credit card debt can’t
Building a career can sometimes be something of a hit-or-miss process that may involve some periods of unemployment or taking a low-paying job just to make ends meet. Student loans can often be put on hold during these times or payments reduced to interest-only payments. Credit card debt just keeps moving inexorably forward, regardless of income level or current employment status. In addition, they just keep gaining interest every day, which means making minimum payments does very little to eat away at the principle.
While student loan debt may seem crippling, it is often much more manageable than credit card debt. In fact, carrying just a few thousand dollars in credit card debt can actually be far more crippling than several thousands of dollars in student loan debt. Second City Advisors can help you get a handle on your credit card debt to make your student loan debt more manageable. Give Second City Advisors a call today to help you get your debt under control