The Value of Debt in Building Wealth

Appendix D

The Millennial's Guide to Debt and Getting Started

Chances are you have some debt—and it might not be “good” debt. Two-thirds of all millennials have at least one outstanding source of long-term debt, generally student loans, home mortgages, and car payments, and 30 percent have more than one. Most millennials feel burdened by that debt and have trouble making payments, and more than half carried over a credit card balance in the last year.¹ With a median income of $57,000, millennials are struggling to keep up.²

Ongoing credit card debt is virtually always bad debt. Avoid it and pay it off as soon as possible. Already high-interest credit card debt can go even higher if you miss a payment. It has no tax advantages, limits your flexibility with monthly payments, and makes it very difficult to get a greater return on the money you borrow. You should have a few credit cards, however, because using and paying them off fully each month improves your credit score, which is important for getting mortgages, business loans, and so on. For emergency and logistical purposes, you should have a large line of credit available on at least one card, but never draw more than 50 percent of your available credit because that could harm your credit score.

Many credit card companies offer low teaser rates, and they count on the fact that sooner or later you will be late or miss a payment so they can increase those rates. Some people try to play the roulette of taking on new credit card ...