MONEY Debt

How One Couple Paid Off $147k of Debt (Even While Unemployed)

two birds escaping cage
iStock

Feeling overwhelmed by your debt? Look for inspiration on how to break free from this couple.

Jackie Beck and her husband once “owned” a six figure debt. They’d borrowed for their mortgage, credit cards, education, autos, and home improvement projects. Like most of us do, they’d borrowed over time, barely noticing as their balances grew and interest accrued.

Beck is not alone. The average American borrower owes $225,238 in consumer debt, including $15,263 for credit cards, $147,591 in mortgage debt, $31,646 for student loans, and $30,738 for auto financing.

What set Beck and her partner apart, however, is that they set out to pay off that debt, and after a 10-year journey, they succeeded. Today neither holds a traditional job, they maintain collective annual expenses of less than $12,000, and they’re free to pursue their passions. “Anyone can do it, too,” says Beck. “You don’t have to have debt. Life is a lot easier without it.” (See also: How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000)

Getting Started

The Beck’s get-out-of-debt journey began when they decided to tackle their credit card balances. “We were just really sick of being in debt and feeling like all our money went toward the credit cards and interest,” says Beck. Paying off the balance on their cards took a full three years and Beck was unemployed for a lot of that time. “In the beginning, it took us a long time to pay things off,” says Beck. “Then we figured things out and we had more money because we had paid more off. You get better at it and it gets faster.”

She’d been deferring her student loan payments but, once the credit card bills were paid, that freed up some extra cash. “I’d been living for many years on very little money. I never would have been able to start paying on my student loans if I’d still had those credit card payments,” she says.

Beck viewed her student debt as a burden and she couldn’t wait to get rid of it. When finally she landed a job, she was able to speed her repayment schedule. “I continued to live on nothing. I put all my money toward my student loans,” she says. “Then it went super fast.” (See also: How One College Graduate Paid Off $28,000 in Three Years on a $30k Salary)

Maintaining Momentum

Beck’s husband was inspired by her student loan success and together they worked to amp up their efforts. They started paying for most of their purchases in cash, foregoing credit cards altogether. Then they decided to tackle their car loan. “After he saw what I did with my student loan,” says Beck, “he thought it would be nice to live without the car payment.”

Even with successful milestones along the way, the Becks repaid their debt at a measured pace. “We spent a lot of time getting out of the debt we had gotten into,” says Beck. “You don’t have to live like a monk the whole time. We had more money coming in and it didn’t all go toward our debt. We spent some.”

The Becks increased spending somewhat over time but even so, they began to view their mission as preparation for an emergency. In the previous years they’d taken turns being unemployed, had undergone surgeries, paid expensive veterinarian bills for their pets, and even totaled a car. They’d taken out a $10,000 home improvement loan around this time, but even though the loan came with a 0% introductory rate for the first 12 months, they realized their attitude toward borrowing had shifted. They were no longer comfortable taking on new debt. “Gradually we realized that debt is dangerous and that something could go wrong,” says Beck.

Ultimately, the Beck’s took the remaining balance from their savings account and paid off the loan. “Life doesn’t work out perfectly and, when you don’t have debt, it really changes what you’re able to do,” she says.

By the time they were able to start tackling their mortgage, their journey had become about more than just safety. They started to view it a road to freedom. According to Beck, “The fewer expenses you have, the longer you can go without a job.” (See also: The Freedom of a Debt-Free Life)

Rewarding Yourself

For the Becks, freedom was defined by the rewards they chose for themselves after they paid off their mortgage. Beck had wanted to travel to Antarctica since she was eight years old and her husband had his eye on a new car. “After the house was paid off, we spent another year saving up for those things,” says Beck, “and then we went and did them.”

Beck also started developing other streams of income and eventually left her day job. “I created the app Pay Off Debt after I paid off my student loan,” she says. “I thought other people might want to obsess about debt as much as I do.” She also started to blog about her journey at TheDebtMyth.com, and even bought a couple of rental properties, paying for them in cash.

As a couple, they’d also learned to keep their collective expenses low.

“We can live on $12,000 a year if we need to,” says Beck. “We basically have no required bills and we’re not eating ramen,” she laughs. “My husband got laid off a week after I quit my job. Neither of us has a [traditional] job now. People who owe a lot of money don’t do things like that,” says Beck, “because they can’t.”

The Beck’s get-out-of-debt journey has changed the way they think about money altogether. Now it’s common practice for them to make their purchases — even big ones — in cash. They don’t carry debt and they can live their lives freely, without the burden of owing money to anyone. Beck is even thinking about a second trip to her dream destination, Antarctica. “I’m totally going back,” she says.

Because she can.

Read more articles from Wise Bread:

How One College Graduate Paid Off $28,000 in Three Years on a $30K Salary
How One Young Entrepreneur Paid Off $40,000 in Student Debt By Age 24
Our Worst Financial Mistakes and What You Can Learn From Them

TIME White House

Obama Signs Order to Secure Government Credit Cards From Data Breaches

US-POLITICS-OBAMA-CFPB
President Barack Obama signs an Executive Order to implement enhanced security measures on consumers' financial security following remarks at the Consumer Financial Protection Bureau (CFPB) in Washington, DC, October 17, 2014. SAUL LOEB—AFP/Getty Images

"Identify theft is now America's fastest growing crime," said Obama.

President Obama signed an executive order Friday to improve security measures for government credit and debit cards, equipping them with microchips in place of the standard magnetic strips and PINs. Obama discussed the new order during remarks at the Consumer Financial Protection Bureau Friday.

“Last year . . . more than 100 million Americans had information that was compromised in data breaches in some of our largest companies,” said Obama, referring to high-profile security breaches at Target and Home Depot. “Identify theft is now America’s fastest growing crime. These crimes don’t just cost companies and consumers billions of dollars every year, they also threaten the economic security of middle class Americans who worked really hard for a lifetime to build some sort of security.”

“The idea that somebody halfway around the world could run up thousands of dollars in charges in your name just because they stole your number or because you swiped your card at the wrong place at the wrong time—that’s infuriating,” said Obama. “For victims it’s heartbreaking. And as a country we’ve got to do more to stop it.”

Obama highlighted the efforts of Home Depot and Target to secure their systems after being hit by breaches this year. They will join Walmart and Walgreens in installing chip and PIN technology in all their stores, most by the beginning of next year. Obama also noted that the Federal Trade Commission will develop IdentityTheft.gov for victims to aide the reporting and remediation process with credit bureaus.

“Identity theft has been American consumers’ number one complaint for more than a decade, and it affects people in every community across the nation,” said Federal Trade Commission Chairwoman Edith Ramirez. “I welcome the opportunity for the Federal Trade Commission to participate in this new initiative advancing efforts to address this insidious problem on behalf of consumers.”

The White House also called on Congress to pass data breach and cybersecurity legislation. “The current patchwork of laws governing a company’s obligations in the event of a data breach is unsustainable, and helps no one,” wrote the White House in a statement.

With reporting from Sam Frizell

 

 

 

MONEY College

This “Smart” Way to Pay for College Could End Up Costing You an Extra 3%

A senior at Western Kentucky University walks past flowering cherry trees on WKU's campus on his way home from class.
Western Kentucky University has one of the highest credit card surcharges. Alex Slitz—AP

A new study from CreditCards.com finds that colleges are increasingly adding surcharges for charging tuition. And these fees typically exceed any potential miles or cash back earned from your card.

It’s getting harder to turn junior’s college tuition bills into free vacations for Mom and Dad.

Wealthy parents have long tried to lessen the pain of paying their kids’ tuition bills by charging the costs to a credit card that pays rewards, with the hope of getting a bit of cash back or a roundtrip flight to Rome out of the deal.

But colleges are now making this strategy less profitable by adding fees for charging tuition, according to a study released Tuesday by Creditcards.com.

The survey of the largest public, private, and community colleges found that 90% of the 100 biggest public universities that accept credit cards charge convenience fees, and almost 70% of the 100 biggest private colleges. (Only 12% of the largest community colleges add credit card surcharges, but community colleges tuition tends to be quite low.)

In most cases, the fees now exceed the value of frequent flier miles or cash back that the parents can earn on a rewards card.

The average reward mile or point is worth less than 2¢, says Matt Schulz, senior industry analyst for CreditCards.com. Meanwhile, the average big college now charges 2.62% for processing tuition through a credit card, according to the survey.

And some schools charge much more. According to the CreditCards.com survey, the big colleges charging the highest fees are:

School State Type Convenience fee rate
Western Kentucky University KY Public 2.99%
Saint Joseph’s University PA Private 2.99%
Roger Williams University RI Private 2.99%
Kansas State University KS Public 2.90%
Ohio University-Main Campus OH Public 2.90%
Kent State University at Kent OH Public 2.90%
University of Akron Main Campus OH Public 2.90%
Bowling Green State University-Main Campus OH Public 2.90%

The Impetus for the Fees

Such fees have become increasingly common in the last decade. A separate survey last year by the National Association of College and University Business Officers had found that 44% of colleges charged a fee for using a credit card, up from 14% in 2003.

Colleges have been adding surcharges in part because they have come under pressure to pare expenses. And credit card companies charge all vendors—including colleges—for processing payments. In 2013, for example, MasterCard’s fees ran from 1.05% to 3.16%.

In addition, schools that do charge fees appear to be encouraging their competitors to follow suit.

“I get a lot of complaints from other schools” that charge fees, says Michael Reynolds, executive director of student financial services at Auburn University, which doesn’t add a surcharge. Reynolds says Auburn absorbs the surcharge—which he estimates at between 1% and 2% of the amount charged—as a cost of doing business.

He estimates that about half Auburn’s tuition bills are put on credit cards. In most cases, he says, it’s just a matter of convenience for the parent or student. But he added that some families do seem to be trying to build up rewards.

The Better Alternative for Most

The fees are just one of many reasons financial experts warn parents away from charging tuition.

Credit card interest rates are usually so high that parents who don’t have enough ready cash to pay off the bill immediately could end up paying thousands of dollars in extra interest, says Kevin Yuann, director of credit cards for NerdWallet.

Anyone who can’t pay cash up front for tuition would really be better off with federal student or parent loans.

Compared to the 15.66% average annual percentage rate on credit cards, federal student loans charge just 4.9% this year, after fees are added in. Parent PLUS loans have a total APR, including fees, of 8.1%.

The federal loans also have much more flexible repayment options, allowing borrowers to stretch out payments for up to 25 years or adjust the payments downwards if their incomes fall. Students working in public service jobs can also get some of their federal loans forgiven.

The Best Reward for the Rest

Absolutely sure you can pay off the big credit card balance quickly? Contact your school to find out whether there’s a fee for swiping.

While the majority have one, there are still several schools that do not charge students or parents extra. For example:

School State Type
Auburn University AL Public
DePaul University IL Private
St John’s University-New York NY Private
The University of Alabama AL Public
University of Nevada-Las Vegas NV Public

And then, assuming there is no charge, make sure you’re getting the most back you can.

Nick Ewen, a frequent business traveler who writes often on rewards at ThePointsGuy.com, says parents with lots of ready cash can turn tuition into valuable goodies.

One British Airways card, for example, offers a free companion ticket to those who spend at least $30,000 a year. And Southwest Airlines offers a year’s worth of free companion tickets to those who earn at least 110,000 points each calendar year.

Or, consider the winners of MONEY’s Best Credit Cards of 2014. The Barclaycard Arrival Plus World Elite offers two points per $1 spent and miles can be applied to your credit card bill to offset the costs of any kind of travel. Or if you prefer cash back, Citi Double Cash and Fidelity Investment Rewards American Express each give you 2% on every purchase.

With the latter, you can direct your earnings to a 529 college savings account—thereby reducing the amount you have to charge next semester.

MONEY Credit

The Crazy Easy Trick to Getting a Credit Card Fee Waived or Your Rate Lowered

Woman on phone calling about credit card fees
Robert Warren—Getty Images

A new report finds that the majority of Americans who've tried this simple move have been successful.

Want to get your credit card issuer to waive a late fee or drop your interest rate? All you have to do is ask, a survey released Thursday by CreditCards.com found.

Nearly nine in 10 cardholders have successfully had a late payment fee waived after asking their credit card company to do so. And two-thirds had their requests for a lower interest rate approved.

As simple as it sounds, only 28% of cardholders have ever asked to have a late payment fee removed and only 23% have requested a lower interest rate, meaning many of us are parting with our money unnecessarily.

A late payment fee can cost up to $26 for first time offenders, according to the U.S. Consumer Financial Protection Bureau. And the difference between a 20% APR on a credit card with a $5,000 balance and an (average) 15% can be as much as $2,496 over the life of the debt if you only make a 3% minimum payment.

“If you haven’t asked before and you are a decent customer, you’re going to get what you ask for,” says Gerri Detweiler, director of consumer education for Credit.com.

There are two other factors, the survey found, that can affect your chances at success: your age and your income.

People in households with annual incomes topping $75,000 were more likely to receive what they had requested: 72% of these folks had their rates decreased vs. 55% of those in households earning between $50,000 and $74,999. And 93% of people in higher-earning households had their late fees removed, while only 84% of those earning between $50,000 and $74,999 did.

Credit card companies also favor older cardholders. While 79% of 50 to 64 year olds had their lower-interest rate request approved, the number dropped to 59% of 30 to 49 year olds and 33% of 18 to 29 year olds.

If you’re a younger and/or lower-earning cardholder, you can increase your odds of getting your issuer to give you what you want by setting the conversation up right, says Matt Schulz, CreditCards.com’s senior industry analyst.

Looking to lower your card’s current interest rate? “Find out what rates other card companies would be willing to offer you, then play this information off your current issuer,” says Schulz. “You could say: ‘I’ve found some other cards that I qualify for with lower rates, and while I’d like to stay with you, I would be willing to leave if you can’t match the rate.”

If your card issuer can’t reduce the rate on your current card, ask if the company has another card that you would be a good fit for that also has a lower rate, advises Detweiler.

Looking to get a fee waived? It helps if this is your first offense: Many companies have policies that will forgive your first fee, says Schulz. Those who have a history of late payments or have not used the card very much are less likely to avoid the fee, says Detweiler.

“The most important thing to do before asking is to make sure that you have paid the balance on the card,” says Schulz. “Then explain that it won’t happen again.”

You’ll also want to provide a succinct explanation for why your payment was late. “Don’t go into great detail, but say something short and reasonable like you were traveling and lost your wallet,” says Detweiler. “Cards companies are generally policy-oriented and just want to see if you fit into one of their reasons for granting an exception.”

MONEY Credit

How to Raise Your Spouse’s Low Credit Score

It's not just your partner's problem—it's yours too, if you ever plan to buy a house or a car together.

While married couples don’t inherit each other’s credit scores, one partner’s weak rating could sink the family’s financial goals.

If one of you has a less-than-perfect number—anything under the mid-700s on the FICO scale—it can affect your ability as a couple to qualify for joint accounts, like credit cards, mortgages, or auto loans, says Rod Griffin, director of public education at Experian.

For example, lenders might not approve you together for as large of a mortgage as you’d like or may only extend you one with a really high rate. And if you can’t handle those terms, “you might find yourself completing an apartment lease application while you work to rebuild your spouse’s credit history,” says Griffin.

As the higher scoring spouse, it’s in your best interest to help your partner improve his or her credit. Here’s how:

Do encourage diligence about credit card payments…

The strength of your credit score is based 35% on your bill payment history and 30% on your level of outstanding debt—particularly credit card debt.

Remind your partner to pay his or her bills on time each month (you might suggest setting up account alerts so that you don’t have to be the nag). And explain to your loved one that it’s important to keep outstanding balances on his or her cards under 20% of the limit on those cards, since the formulas reward a low utilization ratio.

“Attacking those two issues will help improve credit scores faster than any other actions,” says Griffin.

…but don’t step in to wipe away your partner’s missteps

Think twice before using up personal savings to clear your partner’s towering credit card balance.

If the debt stems from reckless and irresponsible spending, bailing out your spouse won’t teach any lessons. “You’ll be an enabler,” says Barbara Stanny, author of the forthcoming book Sacred Success: A Course in Financial Miracles. “[Your spouse] could fall right back into debt.”

A more effective way to help reduce your partner’s debt may be to cut costs from your family budget (primarily from your spouse’s discretionary spending) and use the savings to chip away the debt. While it’s a slower process towards rebuilding credit, the extra discipline and effort involved may be a helpful reminder in the future of why it’s never a good idea to overspend.

Another strategy, if you earn enough money: Consider taking on some monthly costs that you previously shared—like rent or the car payment—by yourself to allow your spouse to use more of his or her salary towards personal debt.

Do let your partner piggyback…

Another possibly efficient way to improve your partner’s credit rating is by adding him or her to one of your major credit cards as an authorized user. “Most scoring models incorporate authorized user accounts in the [credit score] calculation, so they can contribute positively,” says Griffin.

You simply call up your credit card issuer and request to put your partner’s name onto the account as an authorized user. He or she will receive a personal card attached to your credit limit in the mail.

Assuming you both use the account responsibly and pay the monthly balance on time and in full, both your credit profiles can benefit.

But you should know that your spouse will not be liable for payments.

Also just make sure to monitor his or her spending activity regularly. If your partner gets too swipe-happy you may want to cancel access so you don’t see your score come down or your balance go up beyond what you can afford to pay.

….but don’t co-sign on the dotted line

Taking on a new credit card and using it responsibly is yet another way to help improve one’s credit rating. But if your partner needs you to co-sign or be added as “secondary” borrower, think twice.

You’re lending more than just your name. If your spouse falls behind on payments, the bank could come after your money.

“It’s a horrible idea,” says John Ulzheimer, credit expert at CreditSesame.com. “When you co-sign you are essentially…guaranteeing payment on behalf of someone whom the lender feels isn’t credit worthy on their own.”

Co-signed debt can also come to haunt you, should you ever get divorced. “There’s no easy way to separate yourself from it,” says Ulzheimer. “When the two of you break up, you’re still connected via the liability, whether you want to be or not.”

A better idea: Introduce your partner to a secured card, designed for borrowers who can’t qualify for a regular credit card yet due to poor or insufficient credit histories. You load it with your own money—usually between $300 to $500—and proceed to spend. You can only charge as much as you put down as collateral.

Secured cards are available at many banks and credit unions. Money likes the no-fee one offered by Digital Credit Union, the interest rate on which starts at 11.5%. (You must be a member of DCU to apply, though you can join with a $10 donation to Reach Out for Schools.)

The catch with a secured card is that it’s very easy to charge up to the credit limit, but that’s no good for your credit score. Ideally, your spouse should keep his or her spending to less than 20% of the limit.

Consistently paying off the balance for about a year may then earn your partner an upgrade to a traditional credit card with a solid credit limit—maybe even rewards. But most importantly, your spouse’s behavior using the secured card will also be reported to the major credit reporting agencies, which in turn helps to raise his or her credit score.

Farnoosh Torabi is a contributing editor at Money Magazine. She is the author of the new book When She Makes More: 10 Rules for Breadwinning Women.

MONEY 101: What is my credit score, and how is it calculated?

MONEY Apple

Apple Pay Is Here — and There’s Just One Big Problem

140909_EM_ApplePay
courtesy of Apple

While many consumers are ready to embrace the new mobile-payments service, most retailers are not. At least, not yet

On Tuesday, Tim Cook took the stage to announce — in addition to a few other things you may have heard about — a brand new mobile payments service called Apple Pay. Instead of swiping a credit card, users of the service will swipe their iPhones (or Apple Watches), which can be preloaded with customer’s debit and credit cards using the Passbook application.

Having one phone to rule all our cards sounds pretty great, and Apple is certainly positioned better than any other company to make mobile payments finally catch on. But there’s one issue the company still has to surmount before it can kill off plastic for good: Right now, the vast majority of retailers lack the technology to accept the company’s new payment service.

As CEO Tim Cook acknowledged during Apple’s announcement, only 220,000 stores will work with Apple Pay out of the gate. That’s about 2.4% of the roughly 7 million to 9 million merchants in the U.S. that accept credit cards. The remaining 97.6% of businesses do not have point-of-sale systems that work with near-field communication (NFC), the technology Apple Pay relies on. Merchants will have to upgrade their checkout process for Apple’s service to catch on, and the expense of such an endeavor has—thus far—left many businesses reluctant to do so.

Michael Archer, a partner leading the Global Financial Services practice at Kurt Salmon, thinks the major indicator of whether an Apple payment service will succeed is the number of locations prepared to accept NFC. According to Archer, who spoke to MONEY just before Apple Pay was announced, the service would need to be usable at about 20% of U.S. retail locations to reach critical mass of acceptance. So far, Apple isn’t close to hitting that number.

However, Archer points out that credit card companies may have an incentive to help stores acquire NFC technology to give their own cards an edge. “This could be a way to lock someone into the card if you can make it extremely convenient to use in the device,” said Archer. Another development he thinks could work in Apple’s favor is that merchants will soon be forced to upgrade their point-of-sale systems to accept EMV, a new card technology meant to reduce fraud. Card companies have given their customers until 2015 to make the transition, with laggards bearing increased liability for credit card fraud, but stores have dragged their feet. With the deadline approaching, more merchants may finally decide to upgrade and choose to add in NFC compatibility while they’re at it.

But not all experts are rosy on Apple’s chances for mobile payment domination—at least in the near term. George Wallner, co-founder and CTO of LoopPay, an Apple Pay competitor that uses existing point-of-sale infrastructure for mobile payments, predicts a slow acceptance of Apple Pay, and other NFC-dependent services like Softcard and Google Wallet. While Wallner was impressed by Apple’s demonstration, he says it will take more than the promise of Apple compatibility to get merchants to change their ways, especially when the status quo works just fine. “It’s not an easy change,” says Wallner. “It is a long, drawn-out, careful, extensive process. It can take six to eight months to even certify a new system. Retailers look at the bottom line, and they see nobody is offering a financial incentive for them to change.” According to the LoopPay founder, even increased fraud liability may not be costly enough to spur a jump in NFC adoption.

That said, Wallner believes that over time, merchants will gradually upgrade their equipment to support Apple Pay. In a decade, he sees NFC having significant market penetration and co-existing with both older and newer payment technology.

One feature that might convince merchants to upgrade ahead of schedule would be a way for businesses to use Apple Pay to reward loyal customers. According to Archer, a slightly more convenient way to pay, by itself, doesn’t provide enough value to customers or merchants to force a change in behavior. Integrating loyalty programs into Apple Pay, on the other hand, would give merchants a reason to upgrade their terminals and consumers a reason to use the service. Passbook, which powers Apple Pay, also integrates with multiple retailers’ loyalty cards.

Apple “is going to be playing on the cool factor on the first round of this,” said Henry Helgeson, CEO of Merchant Warehouse, a company that helps retailers implement mobile payments. “The real value is when merchants can put loyalty in those wallets and get repeat business. It’s something that they know and retailers know is very important to them. We’re going to see version 2.0 with some of those things.”

Overall, Helgeson anticipates Apple Pay being a huge success. His company recently outfitted 3,000 retailers with upgraded point-of-sale systems that included an NFC reader. “I’m pretty happy about that decision right now,” said Helgeson.

 

MONEY credit cards

Why Millennials are Terrified of Credit Cards

Girl hiding under table
Getty Images

A new poll shows that 63% of Gen Y doesn't carry a charge card. That doesn't surprise MONEY reporter Kerri Anne Renzulli—she's among the majority.

Millennials may have no qualms about skipping cash and swiping plastic for purchases, but we are picky about what kind of card we use. A study released a few weeks ago found that 18 to 29 year olds prefer to swipe debit to credit by a ratio of 3:1.

And now a survey out today by Bankrate.com explains why millennials are reaching for their debit cards so much more frequently: Because it’s the only card many of us have.

More than six in 10 millennials do not own a credit card, the poll found. I am one of them.

For me, this survey was oddly reassuring, putting me in the majority as one of the 63% of Gen Y-ers. While I use my debit card multiple times a day, I still, at age 24, haven’t gotten my first credit card, despite heavy pressure from my parents and my older colleagues here at MONEY who urge me to begin building my credit history.

Why are we millennials making the conscious decision to push off this step?

We don’t love banks

Well, first there’s the fact that as a generation we have low levels of social trust. Having come of age during the recession, we don’t have much faith in traditional institutions like banks, and we certainly don’t want to be reliant upon them any more than we must.

My coworker and fellow cardless millennial Jake Davidson says this certainly figures into his reluctance to sign up. “I feel like credit card companies are waiting to trap me,” he says. “The whole model of their business is to get you into debt. If I use a debit card, there is never any risk of that.”

We already owe too much

Yes, it’s true that if we paid off our balances in full each month, there would be no chance of companies trapping us with revolving debt. But the idea of having to borrow any more money, even if only for a month, can feel like the equivalent of throwing away your life vest to those who are already swimming in deep waters.

I’m talking about the fact that we millennials are already overloaded. On average, we’re starting out with $27,000 of debt from student loans—and that’s just for the bachelor’s degree. Our levels of student loan debt, poverty, and unemployment are all higher than Gen X or Boomers at the same stage of their lives, according to Pew Research.

We’ve seen the dark side

Stories from our friends who’ve actually gotten a card (or two or three) are bleak enough to further scare the rest of us away.

Millennials are the least likely generation to pay their balances off in full each month. A whopping 60% of us don’t, according to Bankrate’s survey. And 3% of us miss payments completely—more than any other age group. That’s all thanks to the high levels of existing debt, low income, and underemployment that make us financially unstable.

We don’t realize what we’re missing

We can’t put this financial step off forever though, no matter how good our reasons. We will need to begin building up our credit histories if we ever want to have a chance of getting an auto loan, obtaining an insurance policy, or buying a house.

So my fellow millennials, if you need to wait for more steady financial times before signing up for plastic, please do so.

But if you’re feeling financially responsible and secure enough to add credit, you might consider easing in with MONEY pick Northwest Federal Credit Union FirstCard Visa Platinum, which is designed for people who don’t yet have a credit history. It has no annual fee, a fixed 10% APR (which is very low, given the average of 15.61%), and a $1,000 credit limit (also very low, so you can’t get into too much trouble).

The only catch is that to build good credit, you’ll want to make sure you aren’t ever using more than 20% of your available credit, or $200.

Oh, and also, you will have to take a 10 question quiz on credit knowledge to get the card—but a little schooling on the risks of plastic won’t hurt you and may even help you avoid turning a financial tool into a financial trap.

As for me, I’m six months behind my original plan to apply for my first card when I got a “real job.” But I’m feeling more motivated these days, knowing that the longer I wait, the further I’m pushing back my dream of renting a whole 600 square feet of New York apartment without my parents’ help.

More on Managing Credit and Debt:
3 Simple Steps to Get Out of Debt
7 Ways to Improve Your Credit
How Do I Pick a Credit Card?

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

 

TIME

America’s Most Deeply Indebted Generation Will Surprise You

Cash Money Dollars
Chris Clor—Getty Images

The one generation that's taken out way more debt and is reducing it at a slower pace than any other

fortunelogo-blue
This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

By Chris Matthews

Millennials may owe more in student loans than any American generation, but their Generation X elders are actually the most in debt.

That’s according to a study released Wednesday by Federal Reserve Bank of St. Louis economists William Emmons and Bryan Noeth. The study showed that the single most indebted birth cohort in the nation are 44 year olds, who owe on average $142,077, most of that composed of mortgage debt.

This figure is actually a marked improvement, as every generation, including Generation X, has made progress paying down or discharging debt. For its part, Gen X has reduced what it owes by between 10% and 15% since 2008. But even on this score, they were beaten out by the much-maligned Millennial generation. These folks, also known as Generation Y, reduced debt even more aggressively than Gen Xers, discharging or paying down upwards of 25% of what they owed in 2008. Emmons and Noeth point out that “millennials were very young during the housing boom and presumably had more limited access to borrowing than members of Gen X.”

For the rest of the story, please go to Fortune.com.

MONEY credit cards

The Spending Mistake that Millennials Are Making

millennial holding credit card
Dimitri Vervitsiotis—Getty Images

Millennials prefer to pay with plastic over cash, a new CreditCards.com study finds—but all that swiping may be unravelling their budgets.

Millennials don’t shop like their parents—and increasingly, they don’t pay like their parents either. Studies have already shown that many of them have chucked the checkbook (if they’ve ever had one); and they’re more likely to forego cash as well, a poll released today by CreditCards.com found.

Asked how they typically pay for purchases under $5, 77% of people over 50 surveyed preferred cash to debit or credit, while just 48% of people between 18 and 29 use paper money. The fact that millennials are using cards to pay for even such small expenses suggests they’re probably using plastic for most purchases.

And when they’re swiping, this group also uses debit (37%) vs. credit (14%) by a larger margin than any other cardholder group.

What millennials may not realize is that choosing plastic—even if it’s debit—over paper could be costing them.

Research has suggested that we’re inclined to spend more when we swipe. A 2008 study published in the Journal of Experimental Psychology found that physically handing over bills triggers an emotional pain that actually helps to deter spending, while swiping doesn’t create the same aversion. As a result, the study found, cash discourages spending whereas plastic encourages it.

In addition, a 2012 study from The Journal of Consumer Research found that shoppers who pay with plastic focus more on the benefits of the purchase than the price, while those who pay with cash focus on price first. In other words, we’re more likely to make the decision to purchase an item when we know we’ll be charging it.

Further fueling our natural tendencies to spend more with plastic—a.k.a. “the credit card premium”—is the fact that many shops and bars mandate that you spend a minimum amount to use your card. So if you were planning to use the card anyway, you might pad your purchase to get to the minimum required.

All this spending on plastic also can cause you to rack up debt or overdraft fees, if you’re not swiping mindfully. And many members of Gen Y are not, it would seem.

For example, millennials are more likely than any other age group to overdraw their checking accounts, the Consumer Financial Protection Bureau found. About 11% of millennials overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000% annual percentage rate, the study found.

Of course, we can avoid paying the credit card premium by just using cash. But if you won’t remember to go to the ATM, at least take a second to close your eyes the next time you’re about to buy something using plastic: Think about the price of the item and how it will impact your bank account. You might even give yourself a 24-hour cooling off period to think over any nonessential purchases.

Avoid overdrawing or getting in over your head in debt by reviewing your bank and/or credit card account online once per day, or by using an app like Mint.com, which lets you track all your accounts in one place. Also, consider setting alerts at your bank or credit card website to let you know when you’re approaching a certain balance—this can keep your spending in check.

Related:

Money 101: How Do I Figure Out My Financial Priorities?

Money 101: How Do I Create a Budget I Can Stick To?

MONEY Ask the Expert

The Best Ways to Access Cash Abroad

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: My 23-year-old daughter will be leaving for France and Spain next week. What is the best and safest way for her to carry money? —K. Bird, Charlotte, N.C.

A: Assuming she’s going for a short time—anywhere from few weeks to several months—her best option will be to carry a debit and credit card issued by an American bank, says John Gower, senior banking analyst at NerdWallet. But she’ll want to be strategic about which institutions she gets these cards from and how she deploys them.

Typically, U.S. banks charge a fee of 1 to 3% of the total transaction amount each time you use a debit or credit card internationally. If you use your debit card to pull out funds from ATMs abroad, you’ll also get hit with an international ATM fee that’s typically around $2, though Gower has seen banks charge upwards of $5. That’s in addition to whatever the ATM you use will charge. So your daughter could be looking at costs of $10 or so each time she takes out $100. This may tempt her to just take out large sums at once, but carrying large amounts of cash through foreign cities isn’t ideal either.

Instead, to cut down on those ATM fees, consider having her open an account with a U.S. bank that has international branches in her destination so she can avoid the international ATM fee. (Citibank is one with many branches overseas.) Or she could open an account with a bank that has international partnerships. Bank of America, for example, is part of the Global ATM Alliance and because of this allows its customers to use their cards at any member banks’ ATMs for free.

Since credit cards offer greater fraud protection than debit cards, Gower recommends that she have a credit card with her as well. The best choice: A card aimed at international travelers that waives foreign transaction fees and has “chip and pin” technology, meaning a microchip is embedded in the card. Because most European countries use this style of card, she will decrease the chances that stores will have trouble reading her card. MONEY likes the GlobeTrek Rewards Visa from Andrews Federal Credit Union, which she can join by signing up for free with the American Consumer Council. This chip-and-pin card has no annual fee and no foreign transaction fees.

If your daughter gets this card, she’d be well advised to use it for her everyday purchases—rather than paying the 3% foreign transaction fee her debit card will charge. Of course, this only makes sense if she’s responsible enough to pay her bill off in full every month.

Does she have plans to be away for quite a while—maybe studying abroad for a year? In that case, she should consider opening an account with a local bank. While there can be hassles involved with understanding another country’s banking rules, she will avoid out-of-network ATM fees and have a debit/credit card that is more universally accepted than an American card might be, says Gower. But she should also keep a U.S. account active in case of emergency, so that someone at home can easily transfer funds to her.

No matter which option your daughter goes with, she’ll want to bring at least two different types of electronic payment. That way if her debit or credit card isn’t accepted by a store or is stolen she has a backup option. She’ll also want to alert her financial institutions prior to departure of where she’ll be going and how long she’ll be there so that the provider doesn’t cancel or halt her card thinking the charges are fraudulent activity.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser