Closing The "Credit Gap" For Millennials
According to the New York Fed, Millennials in their 30s have acquired $3.8 trillion dollars in debt, creating a “credit gap” being driven by increasing costs of housing, inflation, and interest rates. This statistic stands out because of the impact it has on consumer’s credit health, specifically those millennials who are battling the overwhelming amount of debt acquired over the past few years.
So, how can we help close the “credit gap” for consumers? First, we need to start with building simple habits that will support healthy credit.
Avoid unnecessary credit inquiries and new credit accounts. If it’s not going to help you reach your long term credit or finance goals, it’s not worth it.
Use a strategy to manage your credit card debt (utilization). If you are struggling with credit card debt, choosing a strategy, such as the debt snowball, and sticking to your plan can help you get your accounts under control and into a healthy utilization range. Establishing this habit takes time, but once you learn to manage your credit cards effectively, it can save you from future debt trap cycles.
Monitor your credit regularly. Not only will this help issues such as identity theft, but it will help you keep your credit health top of mind.
Identify your fixed accounts and set them up on auto-pay. Unfortunately, late payments can magnify your credit challenges, making it even more difficult to use your credit score to save money in the future.
Once you’ve started implementing small, healthy credit habits, it’s time to prioritize your finance goals. Debt, when used properly, can help you accelerate your progress towards reaching your finance goals. Unfortunately, it can also act as a headwind if it’s not controlled. In our experience, consumers get flustered trying to manage their debt and finances and fall under the belief that debt is the enemy. In reality, debt is what you make of it.
Remember, there is no magic wand that can immediately fix the issue, but with a clear goal and game plan, you can eventually get there. To start, set your finance goal and be specific. Do you want to buy a house in the future, start a business, or save for retirement? Once you’ve set your goal, it’s time to start “practicing” healthy finances.
Start small and focus on simple tasks that enhance your overall financial situation. One example is to set a day once a month when you review your spending and set a plan for the next month. It doesn’t need to consume all of your time, but learning to plan your expenses in advance can save you a lot of time and money in the future. Another example would be setting reminders on your phone to check your credit report each month.
As you gain momentum with practicing healthy finances, you can start to add new layers, such as prioritizing your budget to save money to reach your finance goals. Learning to pay yourself first and live within your means is not as easy as it sounds, but it’s worth the effort to learn how to practice healthy finances to accomplish.
Finally, familiarizing yourself with tools and strategies to optimize your finances and credit can help shift your perspective and accelerate your progress towards your goals. Platforms like our My DIY Credit Ready Plan offer resources and knowledge about how credit works, enabling you to build, protect, and optimize your credit health for the future.
In summary, establishing habits that reinforce healthy credit behavior and practicing sound financial management, such as planning expenses in advance, can help bridge the "credit gap" and guide consumers back on track towards achieving their long-term financial goals.