Young adults face a lot of challenges. They have to figure out how to make a living. They have to figure out where to live, and how to live, so their expenses are less than they’re bringing home. And they have to figure out how to take care of themselves, with relaxation time and exercise in between holding down a job and doing household chores. For 20-somethings who have only lived with their parents or in a college dorm, these are not easy lessons.
A credit card with a high limit — and $300 can feel like a high limit if you’ve never had access to credit before — can make it easy to get into trouble. Once you begin to carry a balance, paying the interest makes it hard to chip away at the principal. So a 0% APR credit card seems like it would make for a great set of training wheels, right?
The problem is that zero percent credit card offers are pretty much good for one thing — transferring balances from higher-interest cards to help the borrower pay their debts off more quickly. And they almost always require the borrower to have good credit.
New borrowers typically don’t have good credit, because their credit histories are short and their track record for paying their loans on time is nonexistent. It’s not fair, but no credit is essentially the same thing as having bad credit from a card issuer’s perspective.
Younger borrowers need to focus on building up a solid credit history, and learning how to use credit responsibly. So it is important for them to get some kind of credit card — even if it’s a secured credit card requiring an upfront deposit.
In an ideal world, the percentage rate on a young person’s credit accounts wouldn’t matter anyway, because they wouldn’t be carrying a balance. The average 20-something is carrying $25,000 in student loans, according to an October 2014 Marketplace report. The last thing they need is to add credit card debt to the mix, even if it is temporarily on a no interest credit card.
To keep balances from creeping up, some borrowers pay the card off right after using it, not even waiting for the monthly statement to arrive. That way, they’re only spending money they know they have in their bank accounts.
Over time, as credit histories get longer and on-time payments show responsibility, most borrowers will be able to graduate from a credit card for people with bad credit and will be able to qualify for the best credit card offers out there, with fat rewards, low fees and high credit limits.
In the meantime, young borrowers should focus less on the interest rate and more on keeping the balance low. Leave the 0% APR offers for people who have already gotten themselves into debt.
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